World Blog by humble servant. Market Outlook....Fact Base Trading.....The Market Speaks Listen.

Investors continued to rotate out of defensive stocks and into growth stocks today on hopes that the Fed could slow its aggressive tightening policy as inflation showed signs it may have peaked. The major averages built on the previous days gains and closed out one of the best weeks for equities since April 2020. Helping to boost stocks was China adjusting its covid policy, easing quarantine for travelers. That news helped crude oil prices jump and the Energy (XLE) sector led todays advance. Big cap technology and semiconductors were also strong making the Communication Services (XLC), Consumer Discretionary (XLY) and Technology (XLK) sectors the other leading groups. Defensive sectors Healthcare (XLV), Utilities (XLU), Consumer Staples (XLP) and REITs (XLRE) all finished lower. While the bond market was closed, mortgage rates dipped below 7% and the iShares US Home Construction ETF (ITB) rose +1.26% and closed above its 200-day MA. The DJIA erased an early 321-point deficit in selling in healthcare components UnitedHealth Group (UNH), Amgen (AMGN), Johnson & Johnson (JNJ) and Merck (MRK) to post a gain of 32.49 points (+0.10%) and close at 33747.86. The S&P 500 added 36.56 points (+0.92%) and settled at 3992.93, while the NASDAQ jumped 209.18 points (+1.88%) finishing at 11323.33. Breadth was bullish with advancing issues beating declining issues 1.8:1 on the NYSE and 2:1 on the NASDAQ. Volume was again heavy with advancing volume 76% on the NYSE and 79% on the NASDAQ. The VIX dropped 1.01 (-4.29%) and closed at 22.52. Crude oil prices jumped 2.51 (+2.90%) and the December contract closed at $89.00 a barrel. Gold prices rose 17.40 (+0.99%) and finished at $1771.10 an ounce. Bitcoin (BTC) closed the session at $16,800. It was a positive and volatile week that may have kick started a year-end rally. The major averages were able to bust through key moving average resistance levels on strong underlying breadth and we could see more gains next week if Tuesday's Producer Price Index (PPI) also shows a crack in inflationary prices. A lower-than-expected PPI could force shorts to cover and trigger a rally that could reach the August highs. Despite this week's gains, the stock market rallied on only one data point. I'm optimistic but investors don't need to jump all in on equities. Nervous investors may want to take profits as the market runs setting up better entry points. Market Outlook: The technical condition of the market improved this week after the major averages once again pushed through key moving average resistance areas and several traded above their October highs. The technical indicators are in bullish territory with MACD, a short-term trend gauge, and Momentum, as measured by the 14-day RSI, firmly in positive ground. The DJIA continues to outperform having crossed above its 200-day MA and the October high. Furthermore, the Dow broke above a downward sloping trendline at 33,000 extending back to the January high which bodes well for the overall market going forward. The S&P 500 is trading above its 100-day MA and the NASDAQ cleared its 50-day MA. Positive divergence was seen in the outperformance of secondary indexes the DJ Transportation Index and small cap Russell 2000 which also crossed above their respective 200-day MA and October highs. The Philadelphia Semiconductor Index traded back above its 50 and 100-day MA. Every sector was positive this week with Financial (XLF), Healthcare (XLV), Industrials (XLI) and Materials (XLB) trading above their respective 200-day MA. Defensive sectors Utilities (XLU), Consumer Staples (XLP) and Healthcare (XLV) were the only groups gaining less than +2.0%. Underlying breadth was bullish with the NYSE and NASDAQ Advance/Decline lines, leading indicators of market direction, showing broad accumulation and the NYSE posting more new 52-week highs twice during the week for only the second time since mid-August. Investor Sentiment soured with the University of Michigan Consumer Sentiment Index falling to 54.7 on Friday, down from 59.9 in October. Other data showed retail investors, according to the American Association of Individual Investors (AAII), falling to only 25.1% bullish, while there was a tick lower in equity exposure by the professionals with the National Association of Active Asset Managers (NAAIM) Exposure Index easing to 54.6 from 55.2 the previous week. In addition, the latest survey from Investors Intelligence shows the Percentage of Bullish and Bearish Investment Advisors about even. Although the different indexes finished the period somewhat extended, near-term targets are 34200 for the DJIA and 4100-4150 for the S&P 500. Helped by overweight big cap tech names, the NASDAQ could see upside of 11900-11950. If you like trading volatility, this was your week. The major averages whipped equities sharply higher ahead of mid-term elections only to nearly erase a two-day 757.61-point spurt in the DJIA on Wednesday following election results. That was followed by a 1201.43-point (+3.70%) spike in the Dow Jones and a +7.35% surge in the NASDAQ on Thursday on a CPI report that showed a break in inflation. The major averages were able to add to the gains ahead of the weekend finishing the period with every sector sporting solid gains. Thursday's October Consumer Price Index (CPI) showed core-CPI, ex-food and energy, rising +0.3%, below estimates, and +7.7% YoY vs. +7.9% expected sending yields lower and equities higher as investors anticipated the data would slow the Fed's aggressive tightening policy. The CME Group FedWatch projected an 80% probability the Federal Reserve would only raise interest rates 0.50-point at the December FOMC Meeting, up from 60% mid-October, and a 0.25-point hike in February. The yield on the 10-year Treasury slipped below 4% and landed at 3.81%, down from a high of 4.237% on Tuesday. A mini crash in crypto currencies also kept traders busy after FTX, the native token of crypto exchange FTX.com sank on lingering concerns over trading firm Alameda's balance sheet. Prices firmed but sank again after a story hit the wire that Binance was walking away from a deal to buy FTX.com after due diligence showed more internal problems. Bitcoin (BTC) dropped to a two-year low, closing at $16,800. Volatility in China stocks soared after covid restrictions eased, sending materials and commodity stocks higher and the KraneShares China Internet ETF (KWEB) jumped more than +6.5%, but remained down more than -50% for the year. Investors rotated into growth stocks on hopes that inflation had peaked, and the Fed could pivot on rate hikes in 2023 and Technology (XLK) led the gains spiking +10.04% followed by Communication Services (XLC) soaring +9.41%. Materials (XLB), REITs (XLRE), Financials (XLF) and Consumer Discretionary (XLY) also outperformed. Boosting the Technology sector was strength in big cap growth names and semiconductors with the Philadelphia Semiconductor Index surging +14.9% on the week. When the dust settled the DJIA had finished higher for the fifth time in six weeks, while the S&P 500 and NASDAQ posted positive for the third time in four. For the period, the DJIA added 1344.64 points (+4.1%) and settled at 33747.86. The S&P 500 picked up 222.38 points (+5.9%) and closed at 3992.93. The NASDAQ jumped 848.08 points (+8.1%) finishing at 11323.33. The small cap Russell 2000 gained 82.87 points (+Cyclical Trend Index (CTI): The underlying premise of the CTI is that the market, as measured by the Dow Jones Industrial Average (DJIA), tends to move in cycles that often resemble sine waves. There are five identifiable cycles, each with different time durations at work in the market at all times. Currently, the CTI is Positive at +10, unchanged from the previous week. Cycles B, C and D are bullish, while Cycles A and E are bearish. The CTI is projected to remain in a positive configuration into December. Momentum Index (MI): The market's momentum is measured by comparing the strength or weakness of several broad market indexes to the DJIA. Readings of -4 and lower are regarded as bearish since it is an indication that a majority of the broader based market indexes are weaker than the DJIA on a percentage basis. Conversely, readings of +4 or higher are regarded as bullish. The Momentum Index is Neutral at -3, up a notch from the previous week. Breadth was mixed at the NYSE as the Advance/Decline line gained 3115 units while the number of new 52-week lows exceeded the number of new highs on three sessions. Breadth was also mixed at the NASDAQ as the A/D line added 2613 units while the number of new lows out did the new highs on each day. Finally, the percentage of stocks above their 50-day moving average jumped to 73.2% vs. 45.7% the previous week, while those above their 200-day moving average increased to 41.6% vs. 27.8%. Readings above 70.0% denote an overbought condition, while below 20% is bullish. Sentiment Index (SI): Measuring the market's Bullish or Bearish sentiment is important when attempting to determine the market's future direction. Market Edge tracks thirteen technical indicators listed below that measure excessive bullish or bearish sentiment conditions prevalent in the market. The Sentiment Index is Positive at +4, up a notch from the previous week. In addition, we track money flows into and out of Equity Funds and ETFs which as of 11/09/22 shows outflows of $8.5 billion. Market Posture: Based on the status of the Market Edge, market timing models, the Market Posture is Bullish as of the week ending 10/21/2022 (DJIA - 31082.6).4.6%), finishing at 1882.74.