A Well Earned Pause
After five weeks of gains the Nasdaq finally took a breather retreating just under 2.5%. By no means is the current rally attempt dead, but there are some warnings signs that shouldn’t be ignored. The action over the past month still has me leaning bullish, but let’s go over the good and the bad.
Before we dive into my full market analysis make sure you are subscribed so that you don’t miss any future updates!
Starting with the good, the Nasdaq remains above both the 200 day simple moving average as well as the shorter 21 exponential moving average.  Since the January 6th follow through day we’ve had a total of 9 follow through like days compared to 2 distribution days. The January 18th distribution day is also no longer relevant since price had advanced over 6% since the close of that day.  Weekly volume on this weeks decline was also much lighter than the previous two weeks. Â
On a not so positive note, the Nasdaq finished the week near the lows, added a distribution day and unfortunately saw net lows on Friday ending a streak of 24 days of net highs. The return of net lows flips the Market Stop Light Indicator to a yellow light, flashing a warning sign. Â
While the return of net lows and distribution isn’t ideal, the action in yields and the dollar is more of a reason to be concerned. This week saw the dollar, and both the 2 and 10 year yields reclaim their 50 day moving averages. The moving averages have all turned and started to trend upward as well.  If these continue to show strength that will continue to weigh on equities.
Despite the Nasdaq pulling back and strength in the dollars and yields, there are a handful of potential leaders that are acting well and continue to show relative strength. Potential leaders like ACLS, ALGM, ANET, CDAY, CRDO, ELF, LSCC, NE and ON closed the week positive, while others like AEHR, ONON, SHOP and SQ pulled back on lighter volume after have 5 or more consecutive weeks up.
Next week brings options expiration as well as a highly anticipated CPI report on Tuesday. The action in the coming days will give clues as to if this rally has what it takes to keep going.
The video below covers the concept of Relative Strength and my three favorite ways to spot it.
Thanks for reading! If you enjoyed this article please help support my work by doing the following:
Follow me on Twitter @amphtrading
Share this post using the button below
The content presented is for informational and educational purposes only. Nothing contained in this newsletter should be construed as financial advice or a recommendation to buy or sell any security. Please do your own due diligence or contact a licensed financial advisor as participating in the financial markets involves risk.