Market Summary

It was a very good week for the markets which were completely in the green for all the markets followed in the table below. What is interesting about the order of weekly performance gains is that gasoline topped the list per the UGA followed by oil per the USO while the NASDAQ Composite was the laggard. Oil prices are in a technical rally and are decoupled from the fundamentals. We have a global slowdown in the demand for oil and an all time high in inventories. Natural gas is in similar situation. UNG is rallying even though inventories of natural gas keep going up. Markets trade on sentiment which is influenced by the technicals but you cannot ignore the fundamentals. Not listed in the list below was the natural gas ETF UNG which was up a whopping 23% for the week. Clearly it was a strong week for commodities which can be seen as defensive while the more risk prone technology heavy NASDAQ Composite was nearly flat for the week. We could be seeing some sector rotation here in preparation for a market reversal. Click on table to enlarge.

The sector performance graph below shows that we have doubled the sector in the green from last weeks three sectors to this week having six sectors in the green. This week we added Financials, Industrial goods, and Consumer goods to the list of sectors in the green for the year. The S&P 500 is only down marginally for the year to date therefore we would expect this performance to be reflected in the performance of the sectors. The laggards are Conglomerates, Utilities, and Healthcare. Click on graph to enlarge.

As I said in last weeks market summary a break above last weeks high of 888.70 and the target would be the January 2009 high in the area of 943. We got up to 930.17 and closed at 929.23 up from last weeks close of 877.52. The 200 day moving average stands at 954.58 and we really are not that far away. The trend line that formed the support line for the rising wedge formation has now become the resistance line as the market has traveled up the channel formed by the original break of the rising wedge on April 20th. I continue to expect a pull back in this market soon as the S&P 500 is setting up to complete an inverted head and shoulders formation. I will keep a close eye on that lower trendline of the channel for prices to break below and signal the start of the pullback. The completion of that pullback should be a fantastic buying opportunity. Click on chart to enlarge.

The NASDAQ has been the leader in the markets move upward but has stalled as the S&P 500 and Dow play catch up to their respective 200 day moving averages. The fundamentals in the economy do not justify the rally at this point and the momentum has been based on technical strength in the markets and not fundamental strength in the economy. This is know as decoupling and is unlikely to continue for very much longer. As can be seen in the NASDAQ chart below we have a hanging man formation which was confirmed by Thursday’s break below the 200 day moving average which stands at 1741.97. Friday was an inside day and therefore a continuation pattern for the prior move which was to the downside with a close at 1739.00. Which way the markets go we will have to wait and see. Happy Mother’s Day to all the mothers. Click on chart to enlarge.