Last Friday some traders noticed the negative reversals in both the Spyder Trust (SPY) and the Invesco QQQ Trust (QQQ). For example, SPY closed at $606.32 on February 6 but opened higher last Friday at $606.89 before closing at $600.77, which was below the prior day’s low.
From a technical standpoint that is not normally a positive sign as a more negative key reversal was formed at the start of the three-month correction in July 2023. A reversal was also formed Friday on the QQQ. Last week’s lows for both ETFs are now short-term support.
In my weekend technical review, I noticed that three of the daily advance-decline lines that I follow closed below their daily MAs as noted by the red arrows in the table above. Only the Russell 2000 weekly A/D line is currently negative. Only IWM closed below its 20-day EMA. Both the SPY and QQQ closed near the midpoint of their weekly starc bands indicating they are neither overbought nor oversold.
Some may remember the stock market trading during the last Trump administration and especially the periodic trade comments that pushed stocks either sharply higher or lower. This article from Reuters outlines some of the key dates from the period. The choppy trading that we often saw during these four years was frustrating for investors who often sold or bought at just the wrong time.
This is probably how some investors are feeling right now as those who bought stocks in reaction to Trump’s victory may be having second thoughts. Their hopes for greater growth are being somewhat replaced by impatience, uncertainty, or even fear.
When my market outlook reflects choppy action as it does currently I have found that looking at the longer-term charts can often keep me in sync with the major market trend. The monthly chart of the Spyder Trust (SPY) continues to look strong after completing a bottom in October 2022. A year later the rising 20-month EMA was again tested after a three-month correction.
The monthly analysis of the S&P 500 Advance/Decline line was positive in November 2016 which was a positive sign for the stock market. This was also the case before last year’s election. It held above its rising WMA in October 2023 before moving above the resistance at line a (see arrow).
The weekly A/D lines are followed more closely as they will generally warn of more serious declines like the one that occurred in the last quarter of 2018 when the S&P 500 declined 13.5%. They will also help identify important buying opportunities.
The weekly S&P 500 A/D line moved to new highs and above resistance, line a, in mid-November of 2023. This was after the AAII bullish sentiment dropped to a low of 24.32% on November 2. By late January 2024 (line c) the NYSE All A/D line had also overcome its major resistance at line b, after moving further above its strongly rising EMA.
The slope of both the WMAs and EMAs that I use on the A/D lines can provide further trend confirmation. The S&P 500 A/D line peaked in November 2024 and as the SPY and S&P 500 made a new high on January 24, the S&P A/D line failed to make a new high. This potentially bearish divergence, line d, will become more significant if the A/D line drops below the September low as it will confirm a new downtrend.
The NYSE All A/D and NYSE Stocks Only (not shown) also have formed lower highs since peaking in late November. Since the NYSE Composite did not make new highs with the S&P, no divergences were formed. These A/D will form new negative downtrends if they drop below support going back to the September lows.
For most of 2023 and 2024, the Nasdaq 100 has been leading the other market averages. In early 2025 QQQ has been testing the rising 20-week EMA at $508.29. It has not had a weekly close below the yearly pivot since March 2023, point 1. This year the pivot that is derived from the price action in 2024, is at $483.29. which is a level that needs to hold on a weekly closing basis. The yearly R1 resistance level and the upper trading channel, line a, are in the $573 area.
The weekly Nasdaq 100 Advance/Decline has made a new high and is leading prices higher as the December 16 high at $538.28 has not yet been exceeded. It bounced off the rising 21-period EMA at the start of 2025 and this is the first support level to watch.
The relative performance (RS) measures the performance of the QQQ relative to the S&P 500. When the RS (in red) is declining as it was for much of 2022 it means that QQQ was declining more than the S&P. In 2022, QQQ was down over 32% while the SPY declined by 18%. In February 2023 the RS broke its downtrend, point 2, signaling the QQQ was again leading the SPY contrary to the prevailing Wall Street opinion.
The CPI report on Wednesday came in higher than expected so it was another ugly open for the stock market Wednesday as the SPY had an early low of $598.51 but then closed at $603.35. The selling was heavy in early trading with a 10-1 negative A/D ratio.
The stock market spent the rest of the day rebounding as both the Nasdaq Composite and Nasdaq 100 closed positive. On the NYSE there were 818 issues advancing and 1972 declining. Now four of the six A/D are negative as they closed below their MAs. A further rally and higher weekly close is needed to suggest that the rebound from Wednesday’s lows was significant.
The revisions in the monthly jobs data and the CPI report appear to put the new administration and the Fed on a collision course. I think patience is the right approach until the weekly and daily A/D lines both signal a new uptrend.
Additionally, I would spend more time looking at weekly and monthly charts certainly not the daily or intra-day data. Some of the best longer-term market analysis is done by an old friend and world-recognized technical analyst Martin Pring.
Martin recently posted a very interesting chart of the ratio between Technology and Financials (XLK/XLF), together with its long-term KST. He commented that ‘the ratio has clearly completed a 2-year top and decisively violated its secular up trendline. I regard that line to be of great significance not only because of its nearly 20-year length, but because it has turned back numerous declines including the late 2022 whipsaw. It therefore represents an important level of dynamic support, whose violation favors financials over technology going forwards.”
The relative performance chart from Stockcharts.com reveals that since the market low in 2009, the Technology Sector Select (XLK) is up well over 1,700% while the Financial Sector Select (XLF) is just up over 500%. Therefore a change in this relationship could have an important impact on the markets going forward.
Next time you are looking to make a change in your portfolio try looking at the longer-term charts before you take action.