The stock market showed ongoing strength after pushing fresh weekly highs on Friday along with the second waves of resistance. The bullish breakout came at the height of the first-quarter earnings season on mostly better-than-expected numbers from corporate America.
The Nasdaq closed at 17,977 (+1.5%) with the peak reaching 18,048. Key resistance at 18,000 held. Support is at 17,750.
The S&P 500 traded up to 5,700 while settling at 5,686 (+1.5%). Key resistance at 5,700 was kissed and held. Support is at 5,650.
The Dow ended at 41,317 (+1.4%) after hitting a high of 41,386. Resistance at 41,250 was cleared and held. Support is at 41,000.
Earnings and Economic News
Before the open: Berkshire Hathaway (BRK.B), onsemi (ON), TG Therapeutics (TGTX), Tyson Foods (TSN)
After the close: Ford Motor (F), Hims & Hers Health (HIMS), Palantir Technologies (PLTR), Vertex Pharmaceuticals (VRTX), Williams Companies (WMB)
Economic News
PMI Manufacturing Index – 9:45am
ISM Manufacturing Index – 10:00am
Technical Outlook and Market Thoughts
The Dow and the Russell cleared their 50-day moving averages on Friday to join the Nasdaq and the S&P after they cleared their 50-day moving averages on Thursday. It was the second-straight Friday the overall market has shown strength and indicates traders are starting to leave some money on the table over the weekend.
Monday’s have remained choppy since the mid-March correction and will need to start showing positive postings before we can fully trust an ongoing rebound off the April 7th market lows. Up Friday’s and Monday’s typically signals money is moving into the market while down Friday’s and Monday’s likely suggests cash is going to the sidelines.
The Nasdaq has rallied 22% since the April 7th intraday low of 14,784 after being down 27% from its all-time high of 20,204. Continued closes above 18,000 gets upside to 18,300-18,600 and the 200-day moving average in focus. The latter represents prior support from mid-November.
New support is at 17,750-17,500. A move back below the latter and the 50-day moving average would suggest a false breakout with backtest potential to 16,750.
The S&P extended its winning streak to nine-straight sessions, its longest in 20 years, and is up 18% from its early April low of 4,835. The action follows a 21% selloff from the mid-February all-time peak at 6,147. Continued closes above 5,700-5,750 and the 200-day moving average would indicate ongoing strength towards 5,850 and prior support from late February and the first half of January.
New and rising support is at 5,600-5,550 and the 50-day moving average. A close back below 5,500 would be a slightly bearish development.
The Russell 2000 has jumped 17% from its April 9th intraday low of 1,732. The small-caps were up 2.3% on Friday and have made up over half of the 30% pounding from its all-time high of 2,466 set last November. The close at 2,020 and above key resistance at 2,000 gets strength to 2,075-2,135 in play. The last close above the 50-day moving average was on February 5th following the 4.4% plunge below this level on December 18th.
Fresh support is at 1,975-1,950. A close back below 1,900 would be a renewed bearish signal with additional risk to 1,875-1,850 and the top of the prior downtrend channel.
The Dow has lagged the other major indexes but is still higher by 13% from its early April bottom at 36,611. The blue-chips were down 19% from the December 4th lifetime top at 45,073 after the first week of April. The next waves of resistance are at 42,000 and the 200-day moving average followed by 43,250 which represents key support from late February.
Current support is at 40,500-40,000. A close below the latter and the top of the prior downtrend channel would reopen a further fade to 39,000-38,000.
The Volatility Index (VIX) closed below its 50-day moving average last Monday and held this level to close out the week. More importantly, the close below 24 on Friday was the biggest development as is starts to confirm a possible near-term market bottom. Historically, the VIX trades around 20 so closes below this level and the 200-day moving average would be very bullish for the major indexes.
Resistance is at 26 and the 50-day moving average. A close back above these levels would be slightly bearish for the market with stretch up to 30-35. Support is at 22.50-20 with Friday’s low at 22.34.
The RSI (relative strength index) levels for the major indexes aren’t indicating overbought levels despite the double-digit gains off the April lows. The Nasdaq is at 60; the Dow is at 56; the S&P is at 59, and the Russell’s RSI is at 58. Readings at 70 and above are considered overbought. RSI readings at 30 and below indicate oversold conditions.
The Federal Reserve will meet on Tuesday and Wednesday with the futures market estimating just a 3.2% chance of a rate cut. Nonetheless, Wall Street will be listening for any commentary from Fed Chair Powell on the economy amid ongoing uncertainty from the trade war.
May has been known for historic corrections and generally bearish months for the stock market but in recent years, the action has been more bullish. If trade deals start to get signed, and volatility continues to ease, there is a chance for the major indexes to make a run at all-times at some point this summer.
