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Midweek Market Trend for May 23, 2018

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The technical condition of the market has improved over the last week.  The S&P 500 (SPX) has managed to hold above both the highs from mid -April and the widely followed 50 day moving average (Figure 1). 

Figure 1: 

Source: StreetSmart Edge®

The NASDAQ (COMPX) has behaved in a similar manner (Figure 2). 

Figure 2: 

Source: StreetSmart Edge®

The Russell 2000 has continued to make new highs (Figure 3) and has been outperforming both the SPX (Figure 3) (A) and the COMPX (Figure 3) (B) which is generally a bullish sign for the overall market.

Figure 3:

Source: StreetSmart Edge®

The market internals are also supporting the current advance..  Notice in Figure 4 that the SPX advance/decline line is making new highs ahead of the index.  This is a positive breadth divergence and is often a harbinger of higher prices.  The breadth charts are similar for the COMPX (Figure 5), the mid cap stocks (Figure 6) and the small cap stocks (Figure 7).

Figure 4: 

Source: ©

Figure 5

Source: ©

Figure 6:

Source: ©

Figure 7:

Source: ©

Another positive development has been the action of the Dow Jones Transports (DJT).  I mentioned last week that if they could break through their resistance it would be a positive.  Yesterday (May 21) they did just that and they are now testing the breakout level (Figure 8). Look to see if they can hold.

Figure 8:

Source: StreetSmart Edge®

The transports are part of the industrial sector which has also been trading better. Over the last week it has managed to trade back above both its 50 and 200 day moving averages (Figure 9).

Figure 9: 

 Source: StreetSmart Edge®

One of the reasons for this better performance is the action in the aerospace stocks.  Over the last few days they have broken out and look like they may test their highs (Figure 10).

Figure 10:

Source: StreetSmart Edge®

The financials are also acting better and it looks like they are breaking out of a bullish flag formation (Figure 11). 

Figure 11:

Source: StreetSmart Edge®

On the downside, the homebuilders have broken down and are now testing the broken support level which could act as resistance (Figure 12).

Figure 12:

Source: StreetSmart Edge®

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. Examples are not intended to be reflective of results you can expect to achieve.

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Past performance is no indication (or "guarantee") of future results.

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Indexes are unmanaged, do not incur management fees, costs and expenses, and cannot be invested in directly.


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