STOCKS WEAKEN AS CORONAVIRUS CASES RISE -- NASDAQ PULLS BACK FROM OVERBOUGHT CONDITION -- WHILE S&P 500 ENDS BELOW ITS 200-DAY LINE -- SECTOR LEADERSHIP REMAINS THIN -- FINANCIALS HAVE A BAD WEEK -- FACEBOOK LEADS INTERNET STOCKS LOWER
MAJOR STOCK INDEXES WEAKEN... Major stock indexes lost ground this week on a disturbing rise in coronavirus cases which could undermine the U.S. economy. Chart 1 shows the Nasdaq Composite pulling back from a record high set on Tuesday. Its 14-day RSI line in the upper box shows a short-term negative divergence from an overbought condition over 70. And its daily MACD lines are negative. The index has slipped below its February intra-day peak at 9838. A pullback to potential June support at 9403 and its blue 50-day moving average appears likely.
SPX SLIPS BELOW 200-DAY LINE... Other major stock indexes have been lagging far behind the technology-dominated Nasdaq market, and their chart patterns reflect that relative weakness. Chart 2 shows the S&P 500 ending the week below its 200-day moving average (red line). That's likely to put pressure on its June intra-day low at 29.65 and its blue 50-day moving average. In addition, its 14-day RSI line in the upper box slipped below 50; and its daily MACD line are also negative. Both suggest loss of upside momentum. Closes below its June low would signal a deeper pullback.
DOW TESTS JUNE LOW... The Dow Industrials are the weakest of the three major U.S. stock indexes. Chart 3 shows the Dowfailing to regain its 200-day line; and ending the week just above its June intra-day low and 50-day average. That increases the likelihood of more profit-taking to come. Boeing (BA) was the biggest drag on the Dow with a weekly loss of -9%. Goldman Sachs (GS) was Friday's biggest Dow loser at -8.6% (reflecting a loss of -6% in the banking group). Nike (NKE) was the Dow's second biggest Friday loser with a drop of -7.6%. While stocks fell in heavy trading on Friday, part of that heavier volume was tied to the annual rebalancing of the Russell indexes.
SECTOR RANKINGS SHOW LACK OF BREADTH... One of the problems with the spring rally is that a relatively narrow group of stock sectors accounted of most of its gains. Big technology stocks accounted for most of the gains in the major stock indexes. and the recent record in the Nasdaq. The three strongest sectors have been technology stocks (like Apple and Microsoft), consumer cyclicals (like Amazon.com) and communication stocks (like Alphabet, Facebook, and Netflix). All three of their sector SPDRS remain above their 200-day lines and not far from their February highs. Healthcare also remains above its red line. The problem is that the other seven sector SPDRS are below their 200-day lines. That shows thin participation. Energy and financials remain the two weakest sectors with four others showing SCTR rankings below 50. Bank stocks and financials had an especially bad week.
BANKS LEAD FINANCIALS LOWER... One of the encouraging signs during the stock runup into early June was participation by cyclical stocks that had been lagging behind the rest of the market. Financials were one of those groups. Chart 4 show the Financial Sector SPDR (XLF) rising to its 200-day average in early June. Its relative strength ratio rose as well. The problem is that XLF failed at its red line; and has been losing ground since then. Chart 4 also shows the XLF ending below its 50-day line on Friday. Its relative strength ratio has been dropping as well. Bank stocks led the XLF lower on Friday and helped make it the day's second weakest sector. Communication stocks were Friday's weakest sector.
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COMMUNICATION STOCKS TURN DOWN... Chart 5 shows the Communication Services SPDR (XLC) undercutting its June and falling to the lowest level in a month. Its relative strength ratio (upper box) also weakened. A drop in Internet stocks helped make the XLC Friday's weakest sector. The biggest percentage loser was Facebook (FB) which fell to the lowest level in a month (Chart 6). Chart 7 shows Alphabet (GOOGL) doing the same. They're the two biggest stocks in the XLC. Chart 8 shows Twitter (TWTR) in an even weaker condition. They were the three biggest percentage losers in the XLC on Friday. And suggests one of the market's strongest sectors may be weakening.
