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The stock market opened strong last Monday and closed with solid gains for the day. But just before lunch on Tuesday Federal Reserve Governor Lael Brainard tried to convince the world that the Fed would definitely be aggressive in fighting inflation. The stock market reacted negatively as the S&P 500 closed down 1.26%.

The decline early in the week fueled more selling in the large tech names as well as the financial stocks. Amazon.com (AMZN) was down 5.6% for the week while the SPDR S&P Bank ETF KBE (KBE) declined by 4.6%. At the start of 2022, I had focused on the weakness in the tech sector.

The weekly chart of Amazon.com (AMZN) had reached the former support, not resistance, line a, the prior week forming a doji. The close this week was below the doji low that generated a doji sell signal. AMZN had a March low of $2671 with the starc- band at $2607. The relative performance RS has been in a downtrend, line c, since 2020 as it has been weaker than the S&P 500. The OBV also shows lower highs, line d, and is below its WMA.

The SPDR S&P Bank ETF (KBE) closed below the weekly support, line e, that goes back to July 2021. The weekly starc- band is now at $46.39. The RS has been below its WMA since the middle of March and has dropped below the support at line f, which implies it should continue to be weaker than the S&P 500. The on-balance-volume (OBV) violated its WMA in February and then in March dropped below support at line g. The OBV is now leading prices lower.

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With the start of each new quarter, I typically review 120 different ETFs looking at the chart as well as how they closed relative to their new 2nd quarter pivot levels or QPivots. These values are calculated from the 1st quarter high, low and closing prices. A weekly close below the QPivot indicates a negative trend, while a week ending close above the QPivot is a positive sign.

The QPivot review indicated that only 39% of the ETFs closed last week above the new 2nd QPivot. Both AMZN and KBE closed the week below their QPivots. It should be noted that KBE has already reached its quarterly pivot support at $48.28. In sum, the review of some of the key ETFs suggested that the rally from the March 14th low may be over.

The Technology Sector (XLK), according to Morningstar, averaged 42.7% a year over the past three years but is down 12.2% in 2022. It closed on Friday at $152.47, well below the QPivot at $158.64 and was down 3.8% for the week. The close was also well below the prior week’s doji low of $156.69. The March low was $140.98 with the starc- band at $134.63.

The weekly technical studies are negative with no indication that XLK has bottomed. The weekly RS dropped below its WMA at the start of January after forming lower highs in December. The RS made new correction lows last week. The OBV closed back below its WMA last week and is now negative. There is important OBV support at line b.

The Consumer Discretionary Sector (XLY) has also been a star performer for the past three years but is down 12% so far in 2022. It was down 3.1% last week and also triggered a weekly doji sell signal. The February low was $161.49 with the starc- band at $155.24.

The RS dropped below its WMA in mid-December after XLY had spent several weeks above its weekly starc+ band in November. It has not yet made new lows and looks slightly better than the RS on XLK. Volume picked up last week on the lower close which is typical for the end of a rally. The OBV has been very weak as the support at line d was broken in January.

It was a tough week for the markets as only the Dow Jones Utility Average and the SPDR Gold Trust closed higher up 1.3% and 1.1% respectively. Both are also showing solid gains year-to-date (YTD)

The Dow Jones Transportation Average was the weakest losing 6.7% followed by a 4.7% decline in the iShares Russell 2000. The Nasdaq 100 was down 3.6% while the S&P 500 acted somewhat better down just 1.3%. The Dow Jones Industrial Average was down just 0.3%.

The market internals were decidedly negative last week on the NYSE with 1086 issues advancing and 2469 declining. In last week’s technical appraisal there was some improvement but the relatively weak close in the Invesco QQQ Trust QQQ (QQQ) was a concern. This week’s sharp decline confirmed the negative momentum. There is next support at $345.47 and then in the $340 area. The March low was $317.45, line a.

The negative A/D numbers on Tuesday and Wednesday turned four of the six daily A/D lines negative (see Tweet) which made the week “ending numbers more important”. The weekly Nasdaq 100 Advance/Decline line has dropped back below its WMA which is consistent with the end of the rebound from the March low. The prior low at line b, needs to hold on a further decline. After last week’s action only the S&P 500 and Dow Industrial weekly and daily A/D lines are positive.

Last week the S&P Growth Index (IGX) was down 2.7% while the S&P Value Index (IVX) was up 0.21%. A ratio is the most common method of determining the trend in $IGX versus $IVX. When the ratio is rising, growth is leading, and when it is falling, then value stocks are leading. A break in the ratio below the support at line b, will suggest that the ratio has made a multi-year turn. The MACD-His is still negative and shows no signs of a bottom as it did in June 2021, line d.

Two value ETFs, favored in the Viper ETF Report, are the Invesco S&P 500 Pure Value ETF RPV (RPV) and the Vanguard High Dividend Yield Index Fund (VYM). Both were higher last week and closed above their QPivots.

Those who are long-growth stocks or ETFs should watch their positions closely this week as earning’s season starts. We may see another market bounce before a further decline but I continue to favor health care and precious metals. The best-case scenario given the still high level of bearishness is for a test or slightly lower lows but do not expect another major wave of selling.

Source: Forbes

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