By Art Huprich, CMT®, Chief Market Technician, Day Hagan Asset Management
Last week’s band reflects a market that has stabilized, set a low for decimated growth stocks and is starting a short-term uptrend. It was last week the trough for growth and stock indices? We will only know afterwards.
MOMENTUM, WIDE PARTICIPATION
The Fed, Supply Chain Constraints, Commodities, Ukraine/Russia, Inflation and Omicron ba.2 are a veritable “wall of worry”, which anecdotally supports stocks. Either way, the action on tape last week was jaw-dropping in terms of momentum and broad participation/breakouts—bullish confirmation.
Momentum: Four straight days in which the S&P 500 (SPX) closed up at least 1% and the NASDAQ rebounded more than 8%, the best week for both indexes since November 20.
McClellan oscillator: Normally used to measure overbought (OB) and oversold (OS) conditions. However, the oscillator recently moved from a relatively OS state in early March to a very OB state last Friday. Since the low in late 2018, this type of reading has occurred seven times. Every time the SPX was higher – momentum. Friday was number eight. Please reach out for the chart.
Wide participation/pushes: According to Ned Davis Research (NDR), Friday’s rally pushed over 90% of SPX stocks above their 10-day MA and a Zweig push occurred (common stocks only). According to NDR, “although past performance is no guarantee of future results, surges in magnitude are among the most consistent indicators since the financial crisis.” Please reach out for the chart.
S&P500 completed a short-term bullish base-building pattern, surpassing a previous price peak and establishing a short-term uptrend. Figure 1.
To add credence to last week’s tape action, stock markets must record upward tracking this week – a critical week indeed.
I’m still of the view that stock markets will continue to experience day-to-day and week-to-week price volatility in both ways. As my friend Helene Meisler, a veteran analyst, reminds us,Nothing like the price to change the feeling.” Therefore, I believe extreme feelings will continue to drive price movement in the short term.
SUPPORT BELOW, RESISTANCE ABOVE
Short-term downtrend lines have been breached on the upside. However, there are many overhanging selling pressures (resistance). Working out the amount of existing overhanging selling pressure (resistance) is not a quick fix. It takes time and effort—volatility.
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—Written on 2022-03-21. Chart source: Stockcharts.com, unless otherwise stated
PDF copy of this article: Day Hagan Tech Talk: Critical Week At Hand (pdf)
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