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Midweek Market Trend for March 6, 2019

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The S&P 500’s (SPX) energetic rally off the Christmas Eve lows seems to have paused for a breather at last November’s highs (Figure 1).

Figure 1:

Source: StreetSmart Edge®

The recent advance was topped off with yesterday’s (Monday March 4) bearish engulfing candlestick pattern (Figure 2). 

Figure 2:

Source: StreetSmart Edge®

This pattern occurs when the Real Body for a price bar is larger than the Real Body for the previous price bar. In addition, for a bearish engulfing pattern, the Real Body of the previous session must be green (close higher than open) and the Real Body of the second session must be red (close lower than open). Such a pattern does not necessarily mean an uptrend is over for good, but can suggest a pullback to a logical support area.  For the SPX that could be either the 20 day moving average (Figure 2) (A), or the 200 day moving average (Figure 2)(B).

One slight negative for the market has been the action of the Dow Jones Transports (DJT). Often in strong advances the transports show positive relative strength.  This was the case until mid-February when DJT broke its relative strength uptrend line (Figure 3) (A). Another concern is that DJT has failed to hold its 200 day moving average (Figure 3) (B).

Figure 3:

Source: StreetSmart Edge®       

While the railroad stocks have been acting well (Figure 4), it is the truckers (Figure 5) and the airlines (Figure 6) that are holding the transports back.

Figure 4 : 

Source: StreetSmart Edge®

Figure 5: 

Source: StreetSmart Edge®

Figure 6:

Source: StreetSmart Edge

On a more positive note, the hotel stocks look interesting. After a strong positive RSI divergence at their lows in December, (Figure 7) (A) they have rallied strongly since.  Now it looks like they may have made a successful test of their 200 day moving average.  Also, for the first time in over a year, the RSI moved above 70 in the latest rally which is bullish behavior.

Figure 7: 

Source: StreetSmart Edge

Finally, keep your eye on the utilities to see if they can breakout (Figure 8).

Figure 8: 

Source: StreetSmart Edge

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