Stock Market Update: Can The Bounce In Stocks Continue?

Are we out of the woods yet? The answer to this question is pretty simple: No.  However, the action at the end of last week and the month of January was constructive for the stock market.

That said, it’s been a rough start to this week and not a whole lot has changed from the past few weeks on a macro basis – feel free to read some of my previous stock market updates (here is last week’s blog post).

After a lot of back and forth price action within a 40-50 handle range on the S&P 500, it took a negative interest rate decision from Bank of Japan to kick of the rally on Friday and expand the range higher. The rally was on higher volume (even if you take out the last few minutes of re-balancing) with positive breadth expansion. A 90% up day where stocks, bonds, US Dollar, gold, oil and everything on earth was up before oil gave some gains – odd action there.

The entire day on Friday, bonds ($TLT) got a bid and a reason why Utilities $XLU were up too. With that said, the S&P 500 ETF ($SPY) regained its 21 day simple moving average and finished over it (before giving it back early this week). While the action was constructive on a weekly basis for stocks, it is important to remain cautious. As always a confirmation of prices ABOVE Friday’s closing price would be ideal.

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Bottoms are not formed in a day so the back and forth price action isn’t uncommon as the indices have to form a base before rallying higher. The market may even want to undercut the current lows (if need be) – although that would only be bullish with some sort of technical indicators for the setup (i.e. a divergence).  There are a lot of ifs and buts right now, so consider this to be just a short term bounce within a much larger downtrend that could continue for some weeks ahead. Stay disciplined and watch your price levels and indicators to manage risk.

If last week was the most anticipated week with respect to earnings report, this week has some big name stocks reporting. $GOOGL blew the doors off but gave back some of those gains.  Other earnings reports this week include $GILD, $CMG, $XOM, $COP, $DECK, $YHOO, $UPS, $GM $LNKD.

There is no dearth for economic reports next week. Some of the important ones coming up are ADP Employment Report, PMI Services Index, ISM Non-Mfg Index, GDP and many more. Of course, the other one that everyone watches is the EIA Petroleum report that has been of great significance with Oil prices.

Breadth indicators:

From a stock market breadth indicator standpoint, here are a some things to watch.

Sector Performance – Releative Strength Glance:

From a sector performance standpoint, most of the sectors have moved higher out of the oversold levels from an Relative Strength Index (RSI) standpoint. Many of them have a bullish posture from RSI standpoint. Mentioned last week that Financials ($XLF) has been a laggard along with Materials ($XLB) and financials got a nice bid and look interesting going into the upcoming week. Many setups there plus in the Oil space.

stock market sectors relative strength index rsi charts january 29

The Relative Rotation Graph (RRG) chart showing the leaders and the laggards among the 9 stock market sectors.

rrg chart relative rotation stock market sectors january 29

NAIIM Exposure Index Reading – 42.25: 

The NAAIM Exposure Index represents the average exposure to US Equity markets. The green line shows the close of the S&P 500 Total Return Index on the survey date. The blue line depicts a two-week moving average of the NAAIM managers’ responses. Last week’s Index number has risen to 42.25. Still not a whole lot of participants.

naaim investor sentiment survey bulls bears chart january

$CPCE – CBOE Options Equity Put/Call Ratio:

The Equity Only Put/Call Ratio is around 0.58 and near another zone where complacency can set in but the good thing is that both the 10 and 21 MAs are sloping lower and normally bodes well for higher prices in stocks. But I do want to caution about any possible complacency.

put call ratio chart week ending january 29

$NYMO (McClellan Oscillator): 

It’s amazing when you look at how oversold the McClellan Oscillator was just a week or so ago and meandering below for the early part of last week. And 2 days especially with Friday’s move, $NYMO is at or near overbought levels. Of course, it can go much higher before being overbought but something to keep an eye on going into next week. $NYSI has made a bullish cross in the mean time.

nymo mcclellan oscillator chart overbought january 29


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