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Midweek Market Trend for November 7, 2018

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Author’s note: This commentary was written on Tuesday November 6, 2018 prior to the reporting of any results from the mid-term elections:

Over the last week the technical condition of the market has modestly improved.  For example, the S&P 500 has managed to crawl  back above its 10 and 20 day moving averages (Figure 1).

Figure 1:

Source: StreetSmart Edge®

However, there are some key resistance levels looming.  The first is the widely followed 200 day moving average at 2764 (Figure 2)(A).  Just above that is the area around 2771,which represents  the 50% retracement level of the decline from the October highs (Figure 2)(B).

Figure 2:

Source: StreetSmart Edge®

There is a current school of thought that suggests we need to test and hold the lows of around 2600 to confirm a bottom. One level to watch to see if this scenario might unfold is 2683, the bottom of a substantial gap (Figure 3).  A movement below this level suggests that a test of the lows is more likely.               

Figure 3:

Source: StreetSmart Edge®

Regarding market internals, the rotation from growth to value that I have mentioned in previous posts continues to play out.  Notice the upsloping relative strength line of the Russell Value Index versus the Russell Growth Index (Figure 4).

Figure 4:

Source: StreetSmart Edge®

 Also, since last week, the McClellan Oscillator, a momentum indicator of market breadth, has finally turned positive after almost two months of languishing below the zero line (Figure 5).

Figure 5:

Source: ©Stockcharts.com

Looking at sector action, consumer staples has broken out from a double bottom and continues to trade well (Figure 6).

Figure 6: 

Source: StreetSmart Edge®

Also notice consumer staples is outperforming consumer discretionary (Figure 7) (A).  It would actually be better for the market going forward, though, if this trend could reverse.

Figure 7:

Source: StreetSmart Edge®

Also notice consumer staples is outperforming consumer discretionary (Figure 7) (A).  It would actually be better for the market going forward, though, if this trend could reverse.

Healthcare, mentioned last week, has continued trading higher. The 100 day moving average, which acted as resistance early this month, is the next hurdle on the upside (Figure 8).

Figure 8: 

Source: StreetSmart Edge

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