Last week, investors and traders were met with a 5.5% decline in the Nasdaq Composite Index, the largest drop since November 2022. The further 10% decline in NVIDIA Corp. shares on April 19th added to market concerns and fueled bearish sentiments. However, technical analysis suggests that corrections in a bull market or rallies in a bear market can create an environment for the prior market trend to resume, potentially signaling a shift in market sentiment.
S&P Global data from mid-April indicated a decline in US equity investors’ risk appetite from 14% in March to 5% in April, marking a three-month low. Additionally, the American Association of Individual Investors reported declining bullish sentiment, with the bullish percentage dropping from 51.7% in March to 32.1% as of last week. This shift in sentiment could play a role in fueling the next market rally.
Technical analysis of the SPDR S&P 500 ETF Trust suggested that the market could be nearing a low, with the ETF closing just above the 20-week EMA. The S&P 500 Advance/Decline line also reversed its negative signal from the previous week, indicating a potential move higher. The ratio of growth to value stocks also saw a shift, with growth stocks leading in early 2024, but value stocks taking the lead in February and last week.
Analysts emphasize the importance of growth/value analysis in understanding stock market trends, citing historical examples such as the dot-com peak in 2000 and the financial crisis of 2007-2008. The IWF/IWD ratio’s downtrend suggests that value stocks currently favor over growth. The Invesco QQQ Trust closed just above the 20-day EMA last week, with the Nasdaq 100 Advance/Decline line needing to move above its downtrend to indicate the correction is over.
Despite a drop following a weaker-than-expected GDP report, the market rebounded throughout the week, with positive sentiments heading into Friday’s PCE report. A positive close this week could shift outlooks to more bullish, but it may take time for the bullish percentage to rise significantly. Monitoring A/D lines for confirmed signals will be crucial in determining if a more severe market decline is on the horizon.
Overall, last week’s market movements reflected a mix of bearish and bullish sentiments, with technical analysis pointing to potential shifts in market sentiment and trends. Investors and traders will need to pay close attention to key indicators like the S&P 500 Advance/Decline line and growth/value stock ratios in the coming weeks to gauge the direction of the market.
