The stock market last week was not impressed by the start of the earnings season. The large financial stocks JPMorgan Chase (JPM), Goldman Sachs (GS), and Citigroup (C) all beat their earnings and revenues forecasts, but their stocks were down 2.5%, 1.9% and 2.3% respectively for the week. This action was consistent with the technical outlook, as stock market risk had increased just last week.
The hourly chart of the S&P 500 from AdvisorsPerspectives.com does not paint a pretty picture of the market action. It is especially interesting that the higher openings Wednesday and Friday were hit with selling, which is a sign of weakness. For the week on the NYSE, there were 896 issues advancing and 2564 issues declining. The declining volume on the NYSE was twice the advancing volume.
The decline last week was again led by the iShares Russell 2000 (IWM), which dropped 5.1% while the Dow Jones Transportation Average was down 2.4%. The 1% decline in the S&P 500 was matched by the Nasdaq 100 Index.
The star performer for the week was the Dow Utility Average, which was up 2.3%. The volume analysis for the related Utilities Sector Select (XLU) had turned positive with the close on July 9 (see chart). For the week, the Consumer Staples Sector (XLP) and Real Estate Sector (XLRE) were also higher. The Energy Sector (XLE) was the big loser, down 7.9% for the week.
Given the price action, it is not surprising that the technical outlook deteriorated further last week. The decline has not been serious enough in my opinion to confirm that a correction is currently underway, as another bounce is possible first.
This is because the daily top formations have not yet been fully completed in the market-leading Spyder Trust (SPY) and the Invesco QQQ Trust (QQQ). The Spyder Trust (SPY) had a high last week of $437.92, which was very close to the monthly R2 pivot resistance at $437.93.
The fact that this level was reached before SPY turned lower is action consistent with the formation of a top. The weekly starc+ band is at $446.06. The rising 20-week exponential moving average (EMA) is good support at $414.04, which is 4% below Friday’s close. There is much stronger support in the $400-$403 area (line a).
The weekly S&P 500 Advance/Decline line peaked two weeks ago, but is still well above its rising weighted moving average (WMA) and the support (line b). The A/D line does not always drop below its WMA on a correction, but in this case it would not be…
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