Market Brief - May 7, 2023
The Wilshire 5000, one of the broadest measures of U.S. stock performance, has essentially been flat since January. This is no doubt frustrating for traders, who prefer the market to pick a direction. The way this frustration manifests itself in the public discourse is wildly conflicting viewpoints on what’s ahead for stocks and the economy, as the bulls and bears each try to get the market on their side. The only leading indicators of direction are price and volume, and this is where we’ll focus our energy on.
Russell 2000 (IWM)
The Russell 2000 has been in a tight trading range over the last 8 weeks, within a larger trading range over the last year. Most of the trading volume has occurred near the bottom of the trading ranges, which would typically indicate an accumulation pattern. High volume with flat price movement suggests the big money is absorbing selling pressure to accumulate shares. Since the other stock indexes are showing technical weakness, we need to see some confirmation of strength from other areas of the market in order to start buying more aggressively.
Nasdaq (QQQ)
The Nasdaq has led this rally YTD but is showing weakness, with 5 high volume distribution days over the last 3 weeks. Friday’s trading range of $7.55 is the widest trading day in over a month, but it occurred on below average volume and failed to close above its April high.
Dow Jones Industrials (DIA)
DIA failed once again to break above its February highs. Volume continues to decline in this advance since the March lows, and we’ve seen 4 high volume distribution days over the past 8 trading days.
S&P 500 (SPY)
Not much has changed for the S&P 500. The index failed to break above its January highs once again, and we’ve seen 4 high volume distribution days over an 8 trading day period. Overall this does not instill confidence in this rally to continue through what is historically a weaker time of the year for stocks.
CBOE Volatility Index (VIX)
Volatility did pick up as we expected, but the VIX closed the week not much higher than its 52-week low. With renewed concerns about the banking sector and uncertainty regarding the debt ceiling negotiations set against technical weakness in the market indexes, we continue to believe there’s more downside risk at this time. The only market-moving events this week are the PPI and CPI prints coming out on Wednesday and Thursday. Both have the potential to move this market out of the current consolidation, either to the upside or the downside.
