Last week, the bulls were in rampage mode as the Financials led the charge with 11% gained follow by Energy (5.47%), Health Care (4.28%),Industrials (3.48%), Consumer Staples (1.47%), Utilities (1.19%),Consumer Discretionary (0.25%), Material (-1.4%) and Technology (-4%).
The top 3 sectors of the year are beginning to show signs of weakness. Technology led the downfall for the first time in many weeks. Without the leadership of technology, the market will have difficulties in finding a strong foothold in the coming week.
The defensive sectors have been rising slowly for the past few weeks. Investors and traders have slowly been bidding up the Energy, Health Care, Utilities and Consumer Staples sectors.
Financials are likely to be a one-time leader as it was boosted by the stress test results. The financial sector is now expected to hover all over the other positions as traders are likely to trade heavily against it.
In summary, the technology and consumer discretionary sectors might just lead the sell off for the next few weeks. The over-supply in the technology sector is already clearly shown in the price action of the Nasdaq Composite Index.
The S&P500 Index closed above 929 last week. This represents a surge of 50 points (5.9%) from the previous week’s close.
The market skyrocketed on Monday due to the good news from the pending home sales and construction spending. The market took a pause on Tuesday as profiting taking was occurring. On Wednesday, the stress test result was leaked to calm the anxiety of investors and traders. A rally took off followed by the good news from the ADP report. The market staged another noteworthy rally on Friday after the initial sell off in the opening stage of the market. The market on Friday took comfort of the better-than-expected report from the employment data.
The last hour action in the market has been very volatile recently. The market usually ended up positive or higher at the end of the trading period. A huge massive volume surge has boosted the market at the last few minutes. This suggests that short covering activity has been very active for the past few weeks in the last minutes of market action. The true color of the market might just be a short covering market with little true buying interest. There is still trillions of dollars sitting on the sides at the money funds.
The VIX and VXN have started to show conflicting information when compared to the market price action for the past few weeks. The VIX and VXN have slowed their declines and yet the market has been rallying at double the rate.
Looking at weekly candles, the S&P500 Index suggests a downside for the week. This is because the market has reached the top of the resistance level of 930. The 3rd candle reversal might just happen. The second week of May is usually a sell-off week.
Looking at daily candles, the S&P500 Index looks like it will have a downside on Monday. Profit taking is likely to occur after the massive runs in last weeks. The market should test the 930 levels and 950 levels if it seeks higher ground.
The immediate support levels now are S1: 925, S2: 900 and S3: 875.?
The immediate resistance levels are R1: 930, R2: 950and R3: 1000.
The Nasdaq Composite has been positive for 9 consecutive weeks since March 9th. The Nasdaq managed to close above the 200 day moving average for the first time this year on Monday. However, the Nasdaq could not hold the gain for the week and closed below the 200 day moving average for the week.
Looking at weekly candles, the Nasdaq Composite is suggesting a pause or reversal this coming week. The weakness in the technology ETF has given investors and traders excuses to take profit. If investors and traders react too strongly to the profit taking this week, it might just create a sell-off which could pull down the rest of the market.
The Dollar Index (DXY) has dropped from 84.5 to 83.8 on weekly candles. The dollar index might just continue its free fall as more inflationary pressures kick in. Gold started to rise again and close at 914. Oil has been steadily climbing up for the past few weeks to close at 57 levels.
In summary, this coming week should experience a sell-off for the Nasdaq Composite and a pause or mild sell-off for the S&P500 index. The Dow Jones Industrial might just get a slight gain as it has still some room to gain till it reaches the top resistance. Overall, the market is likely to go into profit taking mode and a sell-off should ensue if the retail sales data does not come up to expectations.
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