The final FOMC meeting of the year is the focus for the last full trading week of the year. Even though the economic reports have mostly come in as expected regarding inflation now more are questioning whether they should cut rates.
The bullish readings from the advance/decline indicators pointed to higher stock prices before the election. As stocks continued higher into early December signs of deterioration started to appear. A majority of the daily A/D lines peaked on November 29th and then started to decline.
On Monday, December 9th a majority of the A/D lines had turned negative by declining below their MAs as only the Nasdaq 100 A/D line was positive. Since the 12/9 close, the Spyder Trust (SPY) is virtually unchanged as it is still above its rising 20-day EMA at $601.37 and the 50-day MA at $590.60. The October high and the November lows are in the $583-$584 area with more important support in the $568-$570 area which were the late October lows.
This week the S&P 500 A/D line has declined below the November lows and is now close to the more important support at line b. The NYSE Stocks Only A/D line on Tuesday dropped below the support at line c with the next major support level is at the September lows.
The NYSE All A/D line is now testing the support at line d and all three A/D lines did make new highs with prices. The weekly A/D lines also confirmed the recent highs so the current decline is likely a correction in the positive intermediate-term trend. Any rebounds need to move above the declining EMAs to improve the short-term technical outlook.
The First Trust Nasdaq 100 Equal Weighted ETF (QQEW) reversed to the downside on December 9th after making new highs. For the last six days, QQEW has been flat but holding above its 20-day EMA.
The QQQ has been making a series of higher highs as it has gained 2.6% as noted by the highlighted section in pink. This was a sign that only a few stocks had been moving the QQQ higher which is not a positive sign. There is good support for QQEW, line a, in the $128-$130 area. The QQQ has support at $515.58 and the November high with the 20-week EMA at $497
As the other daily A/D lines have been declining the Nasdaq 100 A/D line made further new highs on December 6th before closing below its EMA last Friday. The Nasdaq A/D line is getting closer to support at line d, with more important at line c.
The internal deterioration is more evident when you examine the S&P A/D % and QQQ A/D% which looks at the % of each index that closed higher or lower on each day. The red bars since 12/2 indicate that more S&P stocks have closed lower for the past twelve days On Tuesday 4% were lower.
The chart of the $NDXADP reveals that more QQQ stocks declined on four of the past five days. Even with the sharp gain on Monday 54% of the stocks in the Nasdaq 100 were lower. The lower highs in the black bars is consistent with a rally that has been getting weaker, not stronger.
This view is consistent with my New High, New Low analysis on both the NYSE Composite and the Nasdaq Composite as there have been more New Lows than New Highs. This also favors further market weakness possibly after a rebound as the market has been lower for many consecutive days.
The increased risk from the technical deterioration is a suggestion to consider reducing your equity exposure now rather than trying to sell as the market is dropping. The leading market averages and ETFs should find support at their 20-week EMAs.