STOCK REBOUND REMAINS INTACT --BUT LONGER-TERM TREND REMAINS IN DOUBT -- HEALTHCARE AND TECH ACCOUNT FOR THIRD OF SPX -- EQUAL-WEIGHT S&P 500 ETF LAGS BEHIND

MAJOR STOCK INDEXES END WEEK SLIGHTLY LOWER...After an unusually volatile week which included a plunge in the price of oil below zero, major stock indexes ended the week with small losses.   Which leaves their overall trend patterns little changed.  Chart 1 shows the Dow Industrials ending the week just below its 5o-day average.  The Dow remains below potential resistance at its late February low of 24,700.   Chart 2 shows the S&P 500 just above its blue line.   The SPX also remains below its late February low at 2855.   While Chart 3 shows the Nasdaq Composite trading back above its 200-day line.  In addition, the Dow and SPX have retraced about half of their first quarter loss; while the Nasdaq has regained 62%.  All of which show the three major stock indexes challenging overhead resistance barriers.   But doesn't answer the bigger question of whether this is a bear market rally or the start of a new uptrend.

WEEKLY SECTOR PERFORMANCE...The only two sectors that gained on the week were energy and communication services. A rebound in the price of oil later in the week help boost energy shares (and stocks in general); while communication shares were led higher by Internet stocks like Facebook (+6%).   The other nine sectors lost ground with the biggest losses in real estate, utilities, and staples.   Healthcare, consumer cyclicals, and tech also had a relatively strong week.  The fact that consumer cyclicals did better than defensive sectors like consumer staples is mildly encouraging.   Leadership by healthcare and techs, however, raises some concerns.

HEALTHCARE AND TECH ACCOUNT FOR A THIRD OF SPX GAINS...Healthcare and tech stocks have accounted for a big part of market gains over the last couple of months. Charts 4 and 5 show the Healthcare SPDR (XLV) and Technology SPDR (XLK) both trading above their 200-day lines. They're the only two sectors to do that. In addition, their rising relative strength ratios (solid lines) show them leading the S&P 500 higher over the last two months. And they happen to be the market's two biggest sectors with tech accounting for 22% and healthcare 15% of the S&P 500. Their combined weighting accounts for more than a third of SPX gains since the March bottom. Normally defensive healthcare stocks are getting a big boost from work being done to confront the Covid-19 pandemic. Big tech stocks continue to benefit from their high-growth potential at a time of global economic weakness.   That also gives big tech a somewhat defensive quality. In addition, five of the biggest tech stocks account for nearly 20% of the S&P 500. Which raises some concerns that the current rebound may be too dependent on those two stock groups. And not as broad as it would need to be to sustain its current uptrend.

S&P 500 EQUAL WEIGHT ETF IS LAGGING BEHIND...One way to get a different read on the strength of market rebound is to look at the Invesco S&P 500 Equal Weight ETF (RSP).  As its name implies, the RSP gives equal weight to the same 500 stocks in the SPX, and reduces the impact of the larger tech stocks that have led the current rally.  Chart 6 shows the RSP still well short of a 50% retracement of its first quarter losses, and further below its 50-day average.   And a lot further below its late February intra-day low at 99.47.  That's also another way of showing that large cap stocks have outperformed smaller stocks during the spring rebound.   And that smaller stocks more tied to the U.S. economy have been lagging behind.  That's not an encouraging sign either.

Chart 6

LONGER RANGE CHARTS SUGGEST MORE CAUTION... Longer-range charts continue to warrant a more cautious view on stocks.  The weekly bars in Chart 7 show the S&P 500 regaining about half of its first quarter loss and starting to meet some overhead chart resistance near its moving average lines (and autumn lows).  In addition, its 14-week RSI line (upper box) has yet to clear its mid-line at 50.  While its weekly MACD lines (middle box) remain in negative territory and well below their zero line.   All of which paint a more cautious picture of the market's major trend.

MONTHLY CHART... The monthly bars in Chart 8 also present a more cautious view of the market's major trend.  It shows the SPX trading back above its late 1918 low and its lower monthly Bollinger band which is encouraging.  But the SPX has yet to clear the middle dashed line which is its 20-month moving average (blue arrow).  That's usually needed to signal that a more substantial uptrend is in progress.   The upper box shows its 9-month RSI line still below its 50-line.   While the middle box shows its monthly MACD lines still in a negative alignment.  With no sign of improvement.

BEAR MARKET RALLY OR NEW BULL?  That's the big question being debated in financial circles.   I lean toward the view that the current market rally is still within the confines of a bear market rally, and still vulnerable to more selling to come.   The market continues to show short-term resilience as each pullback is met with new buying.      Longer range charts which usually carry more weight, however, are sending a much more cautious message.