Doji Warning Signs For The Week Ahead

Doji Warning Signs For The Week Ahead

The major averages were mostly lower last week and did not provide the strong market internals that the pundit Tom Aspray thought was needed to support the bullish case. The current technical indicators provides some data to watch in the week ahead as several sectors are leading the market.

 

The daily price swings in the S&P 500 last week were pretty typical of 2022. On Monday and Wednesday, it was down 0.89% and 0.83% but had a gain of 0.87% on Tuesday. The Friday gain of 0.48% more than offset Thursday’s 0.31% decline. For the year there have been 54 days when it was up over 1% and 56 when it was down 1%.

 

The only year since 2013 that comes close was 2020 with 65 1% gainers and 45 1% losers. It was evident early in the year that market volatility had picked up. At the time I thought it would continue but not last all year.

 

Markets

 

In last week’s scoreboard, there were mostly minus signs, led once again by the Nasdaq 100 which was down 1.2%. A new addition to the table is the 200 day simple moving average (far right column) which I thought you would find useful.

 

Only two markets closed the week above their 200 day SMA, the Dow Jones Industrial Average and the Dow Jones Transportation Average which I have highlighted by putting their prices in green. Market participants often watch these levels. The S&P 500 was down just 0.7% last week and is just below its 200 day SMA at 4067.34.

 

The Dow Jones Transportation Average was under the most pressure down 2.1% followed by a 1.7% drop in the iShares Russell 2000. The Dow Jones Utility Average gained 1.1%. The SPDR Gold Shares (GLDGLD -0.7%) were down 1.1% after an impressive gain the prior week and the outlook for the gold futures, as discussed later, has improved.

 

For the week the market internals were negative with 1484 issues advancing and 1928 declining. On a daily basis they flip-flopped like the price action. The overall negative numbers reversed most of the positives from the prior week. Of the weekly A/D lines only the S&P 500 and Dow Jones Industrial Average are now positive.

 

QQQ

 

In the week ahead this is one data series that I will be watching as another week of negative numbers will turn the intermediate outlook more negative. This data will be especially important for the Nasdaq 100 which formed a doji last week with a low of $280.72. A close on “Black Friday” below this level will trigger a weekly doji sell signal. A drop below the support at $262.04, line b, would support the bearish case especially since the 20 week EMA has not yet been overcome on a closing basis.

 

The weekly Nasdaq 100 Advance/Decline line closed back below its still declining WMA this week. The fact that it has just reached the resistance at line c, is not an encouraging sign. A drop below the November 4th low would be even more negative as it would project a move to new correction lows.

 

SPY

 

The Spyder Trust (SPYPY +1.2%SPY +0.5%) also formed a weekly doji last week with a low of $390.14, just above the slightly rising 20 week EMA at $389.92. There is a further level of support at $368.79 which was the swing low midway through the rally.

 

The S&P 500 Advance/Decline which has been the strongest since the October low is still well above its flat WMA. A decline below the most recent low (see arrow) would be a sign of weakness. A week of strong A/D numbers is needed to turn it more positive.

 

TUX

2 Year T-Note Yield

After the 2 and 10 Year T-Notes yields did top out I was looking for yields to rebound but they didn’t until the end of the week. The 2-Year yield had a low of 4.322% but then closed the week at 4.531%. That was back above the lower boundary of the trading channel, line b. That suggests we could see a bounce back to the 4.650% area if not higher this week. The MACDs are clearly negative and show no signs yet of bottoming.

 

Gold

Gold Futures

The action in the gold futures over the past three weeks suggests that they may be in the process of bottoming. The futures reached the 38.2% resistance at $1792.50 last week after a low of $1618.30 just three weeks ago. If the lower close last week is part of the bottoming process the correction should not last too long and create an opportunity.

 

This rally was more impressive than the summer rally as the on-balance-volume (OBV) has moved well above its WMA. The volume was stronger early in the rally. Also, the Herrick Payoff Index, which looks at the price, volume and open interest has turned positive by moving well above the zero line and its WMA.

 

I will be watching the action in GLD as well as the VanEck Gold Miners ETF (GDXGDX +0.9%) this week for signs of a bottom as well as to identify new entry levels.

 

The sentiment in the financial press last week seems to be more positive as many allow for a rally back to say 4150 if not 4300 in the S&P 500. That was my view last month but I am more cautious as the A/D lines have not been strong enough for me to be confident in these targets right now.

 

Of course it is possible that we will just see more weakness in the tech growth ETFs and stocks as there are a number of sectors that look much more positive than SPY and have positive relative performance.

 

So for the week ahead watch the advance/decline numbers early in the week. The formation of weekly dojis in SPY, QQQ 0.0% and DIA means that it will be important to watch last week’s lows in these markets. A close this week below these levels will generate weekly sell signals.