Are stock market bulls getting riskier?

The stock market can often be a challenge as a shortened vacation week approaches. For traders, many worry about holding positions over a long weekend or adding new positions before a partial trading day like last Friday.

The previous week’s doji formations in the S&P 500, Nasdaq 100, Dow Jones Industrial Average and NYSE Composite could not be ignored, especially in a short week. Dojis are formed when the opening price and the closing price for the period are approximately the same. They are often seen as a decision sign because buyers and sellers end up at the same price.

This candle formation is not bullish or bearish per se, but after a well-established rally, the close below the doji low generates a bearish signal. Additionally, after a well-defined downtrend, a close above the doji high generates a bullish signal, as discussed in a previous article.

Therefore, I suggested last week that investors and traders watch to see if these averages have closed below the previous week’s lows. They do not have!

At the start of the week, the daily rise/fall lines were positive, but in my opinion, stronger numbers were needed to project even higher prices in major market indices like the S&P 500. As I have noted in a Tuesday morning tweet they were only slightly negative on Monday as they improved at the close. Tuesday’s very strong early numbers shifted the outlook in favor of the bulls.

For the week, the Dow Jones Utility Average led the way closing down 3.5% as it is poised to break above its 200-day SMA at 977. The Dow Jones Industrials also had a strong week as it rose gained 1.8% as it once again closed above its 200-day mark. SMA day. The S&P 500 was not far behind as it approaches its 200-day SMA at 4056.91 after rising 1.5%.

I wasn’t surprised that the growth-dominated Nasdaq 100 struggled to gain just 0.7%, but the iShares Russell 2000 did a bit better. For the week, the rising numbers were the big winners as 2426 numbers were up and 935 were down.

The Spyder Trust (SPY
P.Y.

TO SPY
) was able to close above the previous week’s doji high at $402.31, indicating a test of the downtrend, a-line, at $410. There is additional resistance at the August high of $429.96 and a move above this level would support the idea that a major stock market bottom is in place. The 20 week EMA is at $391.10 and a weekly close below this level would be a concern

The S&P 500 Advance/Decline line rose sharply last week, supporting the earlier positive move above its WMA. There is major resistance at the c-line, which if breached would be a clear sign that this was more than a bearish rally.

Invesco QQQ outlook
QQQ
Confidence (QQQ) is not as positive as it closed below its 20-week EMA at $289.14 and the previous week’s doji high at $293.26. This level must be breached to signal a move towards the downtrend, line a, at $304.08. The starc+ weekly band is at $314.03. There is strong weekly support, line b, at $263.04.

The Nasdaq 100 Advance/Decline line moved back above its WMA but back to resistance at the c line. This makes this week’s numbers more important because if the A/D number is negative, it could fall back below its WMA.

The relative performance (RS) is still below its falling WMA, indicating that QQQ is weaker than the SPY. The downtrend in the RS d-line needs to be overcome to suggest that QQQ is going to be a market leader and that is unlikely to happen soon.

All daily A/D lines are positive and made new rally highs last week. They are well above their rising MAs, which is a positive sign for the week ahead. Before we see a significant correction, the A/D lines will usually fall below their MAs before a significant decline in the stock market.

The trend for interest rates is still lower yields as there were clear signs of a top in early November. This was confirmed by the subsequent break of support at line b. Then there is good yield support in the 3.563% to 3.483% area, line c. A drop to the 3.200% area, d-line, is not out of the question as we head into the December FOMC meeting on December 13-14.

MACD and MACD-His analysis are still negative as they completed their leading patterns in October. The MACD has reached new lows but not the MACD-His, so it will have to be watched in the coming weeks.

As traders become more optimistic, they often begin to turn to historically riskier investments. Hopes of a so-called pivot from the Fed have risen in the past week and that is reflected in funds flowing into junk bond ETFS like the iShares iBoxx $High Yield ETF (HYG
HYG
).

Bloomberg reported the two largest months of fund flows, $13.6 billion, into high-yield corporate bonds like HYG in October and November. The weekly chart of HYG, which has a yield above 5%, has rallied from the October low of $70.13. The downtrend, line a, is a bit above last week’s close at $75.78 with major resistance at the $78 area.

The break even (OBV) is barely above its WMA and has not convincingly broken above the downtrend, line b. The OBV did not form a new low in October, so it shows potential positive divergence, line c. HYG needs a much higher volume rally to confirm divergence.

Unlike HYG, volume analysis looks much stronger on gold futures and SPDR Gold Trust (GLD
GLD
) that were discussed after Friday’s close. It’s no surprise that, based on one-month performance against the S&P 500, the Materials Select (XLB
XLB
) outperformed by 7.5% followed by Industrials Select (XLI
XLI
) and Financial Select (XLF
45
).

In my weekly stock analysis, there are a number of attractive chart patterns for the week ahead. The 250-minute futures analysis turned negative on Friday, giving us some profit taking early in the week. This should be a buying opportunity. I would suggest that you continue to focus on the market leaders and despite the current bullish readings, always pay attention to risk.