Weekly Market Outlook – This is Where the Bears Have Another Shot

Weekly Market Outlook – November 17th, 2019

The momentum is enticing, but beware. Both of the key indices reached pretty well defined technical ceiling on Friday, simultaneously logging what’s near the maximum unfettered runup possible in an environment such as this one.

The specifics: The S&P 500 has rallied 9.2% from its early October low. That’s more or less in line with the 11% run between early June and late July. Also notice Friday’s high aligns with the July and May peak, suggesting a technical ceiling has been bumped. This would be the ideal place for the bears to make their stand.

S&P 500 Daily Chart, with VIX and Volume

Source: TradeStation

You can sense it on the daily chart, but you can clearly see it on the weekly chart… the VIX is pausing at it nears the floor around 11.4. The same weekly chart’s RSI line is as near to being officially overbought as it’s been since the middle of 2018 (when the market cam unraveled). In the same sense, notice how the index has been range-bounce since May’s high. The red, dashed line is the upper boundary of that range.

S&P 500 Weekly Chart, with VIX

Source: TradeStation

The same details apply to the NASDAQ Composite. That is, it too bumped into the line that connects April’s and July’s peaks (red, dashed), but didn’t go any farther. The VXN is also dancing with its absolute floor.

NASDAQ Daily Chart, with VXN and Volume

Source: TradeStation

Still, this is a bullish time of year, and the momentum is enticing. Be careful about leaning too bullishly — blindly — here though. Until Thursday, although the market was rallying, the rally was increasingly hollow.

The graphic below tells the tale. The daily NYSE volume peaked in late October, as did the NYSE’s total advancers. Conversely, the exchange’s total decliners were on the rise, as was its total bearish volume. The scaled tipped in the other direction beginning on Thursday, but one or two good days don’t make or break a trend. Nevertheless, all trends start with that first step. It’s just suspicious that the market was able to rally as well as it did for as long as it did with participation in that effort waning the whole time.

S&P 500 with Daily NYSE Advancers, Decliners, Up Volume, Down Volume

Source: TradeStation

It all makes this week a pivotal one, with the fans of volatility further flamed by a winding-down earnings season… and of course, more politics. The development (or lack thereof) of a trade truce between the U.S. and China is sure to stoke fires.

Traders seems to want to make sure a Santa Claus rally takes shape. But, the backdrop is less than ideal for that. If traders end up becoming disappointed, the overbought market could quickly and easily succumb to its current overbought condition.

 

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