For the week ending July 11, 2014, one CI Market Dashboard indicator was bullish, four were bearish and four were neutral. This reflects the gain of two new bearish signal and the loss of a bullish and neutral signal. Another indicator also triggered a confirming bearish signal.

The first full week of trading for the third quarter was a bumpy one for investors, as European debt once again garnered headlines and rattled nerves. Worries about the financial stability of Portugal’s Banco Espirito Santo send European markets tumbling on Thursday, along with Portuguese, Spanish and Italian government bonds. American markets opened down sharply on Thursday but managed to recover a good amount of their losses. However, U.S. government bonds benefited from a “flight to safety” and their yields dropped.

The Federal Reserve gave its clearest signals yet about its plans for tapering its asset-buying program. Minutes from the June Federal Open Market Committee (FOMC) meeting show the Fed plans to end the asset-buying program in October. The market reacted favorably to the news, mainly because there was no clear signal on interest rate increases.

Looking at the U.S. equity markets, the Dow Jones industrial average (DJIA) fell below the 17,000 level this week and closed at 16,943.81. The blue-chip index posted a 1.3% for the week. If we are entering a period of weakness, look to the 16,800 level for support. In addition, the index is approaching its 50-day moving average, which may offer additional support. However, a violation of the 50-day moving average would more than likely trigger program traders, which would add to the weakness.

The S&P 500 Index (SPX) was down 0.9% this week and closed at 1,967.57. For the large-cap index, the 1,950 level stands as an initial support level. Only two of the nine S&P Select Sector SPDR ETFs posted a gain for the week. Utilities fared the best, rising 0.78% while the energy sector brought up the rear with its 1.98% loss for the week. The technology sector was relatively quiet this week, ticking downward 0.08%.

The broad market Wilshire 5000 (W5000) index slid 1.3% this week, dipping back below the 21,000 level to close at 20,805.67. The index is rapidly approaching initial support at 20,750.

Lastly, the Nasdaq Composite (COMP) had a rough week compared to other broad indexes, shedding 1.6% to close at 4,415.49. The 4,350 level appears to offer initial support against any near-term weakness.

The jump in market volatility this week has some market pundits wondering how much more steam this five-year bull market still has left. With the Nasdaq Composite recently trading at 35 times reported earnings and the S&P 500 trading near 18 times reported earnings, it is safe to say that U.S. equities, by and large, are by no means cheap. In fact, we may be seeing a replay of March and April. For the month of July, the S&P 500 and Nasdaq Composite are up 0.37% and 0.17%, respectively. In contract, the Russell 2000 small-cap index is down 2.77% for the same period. In March and April, small-cap and momentum issues fell sharply, while large-caps stocks moved mainly sideways. If you favor small-cap stocks such as myself, this is a development worth watching.

In tech-related news, personal computer sales were higher than expected in the second quarter, falling less than expected. According industry market research and analysis firm IDC, global unit shipments fell 1.7% versus a forecast of a 7.1% quarterly decline. Market leaders Lenovo, Hewlett-Packard (HPQ) and Dell all saw double-digit percentage gains.

In terms of the CI Market Dashboard, the iShares Dow Jones U.S. Index Fund (IYY) lost 0.97% this week to close to close at $99.30. The $100 level did not offer support, so we can look to the $99 level as a near-term support level, as it was in June.

There was quite a lot of activity this week among the Dashboard indicators. We saw a gain of two bearish signals, while losing one bullish and one neutral signal. Another indicator triggered a confirming bearish signal.

Market Dashboard indicators worth discussing this week are:

  • IYY remained above its 100-day simple moving average, so the iShares Dow Jones Index Fund 100-day Moving Average Crossover indicator also remains bullish. The difference between IYY’s closing price and the moving average narrowed to 3.98%.
  • The MACD on IYY changed its signal for the third week in a row as the MACD line on IYY closed below the signal line, meaning the MACD on iShares Dow Jones U.S. Index Fund indicator went from bullish to bearish. The MACD of IYY ended the week at +0.650 while the signal line reading is at +0.776.
  • The percentage of NYSE stocks trading above their 50-day moving remained bearish this week with a reading of 66.56%. By falling below the 75% bearish threshold, however, the indicator triggered a confirming bearish signal. As a result, the “stale date” on which the signal will revert to neutral without another bearish signal for six months is now January 9, 2015.
  • The NYSE Bullish Percentage P&F chart dropped to 72.60%, but the indicator remains bearish. This is the sixth week in a row this indicator has been above the bearish threshold. We are now waiting for the reading to fall back below the 70% bearish threshold, which would result in a confirming bearish signal and would rest the “stale date” on which the signal would revert to neutral without another bearish signal for six months.
  • The NASDAQ Summation Index Moving Average Crossover with MACD Confirmation indicator ended its bullish string this week. The $NASI (+181.61) closed the week below its five-day exponential moving average (+233.18), one half of a bearish signal for this indicator. The second piece is the MACD line of $NASI (+105.665) falling below the signal line (+122.901).
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Wayne Thorp

Wayne A. Thorp, CFA, is a vice president and the senior financial analyst at the American Association of Individual Investors (AAII). His primary responsibility is to oversee AAII's content strategy. He is also the program manager for AAII's Stock Investor Pro fundamental stock screening and research database program and is on the advisory boards of AAII's Stock Superstars Report and Dividend Investing newsletters. He holds the Chartered Financial Analyst (CFA) designation and is a 1997 honors graduate of DePaul University in Chicago. Wayne's interests include stock screening, technical analysis and charting, social media and tech gadgets. However, in the summer he'd prefer to be hip-deep in northern Michigan's Manistee River fly-fishing for rainbow trout. He is also a rabid University of Michigan and Detroit Red Wings fan.

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