The stock market faced heavy pressure last week due to sell mode signals from technical analysis and increased tensions in the Middle East. Major market averages like the S&P 500 and NASDAQ 100 declined almost every day, with market leader NVIDIA suffering a 10% drop on Friday. The Nasdaq 100 tried to hold up early in the week but eventually fell 5.4%, barely staying higher year-to-date.
The S&P 500 and Dow Jones Transportation Average also saw declines, with the $TRAN down 5.13% year-to-date. The $TRAN’s failure to rally in line with the rest of the market has raised doubts about the stock market’s rally. The technical action for $TRAN has been weak since last fall, with oversold readings and a lack of signs pointing to a market rebound.
Market internals were also negative, with the NYSE seeing more declining than advancing issues. The Spyder Trust revealed oversold conditions with support levels tested, indicating a transition from overbought to oversold. The decline in the weekly indicators may signal a potential correction low.
The Invesco QQQ Trust dropped below its uptrend, triggering a wave of selling that lasted the week. The decline in the NASDAQ 100 Advance/Decline line indicated a loss of market leadership, with negative divergence suggesting QQQ would drop more than the S&P. The Technology Select Sector ETF saw a 6.3% decline, with Microsoft, Apple, and semiconductor stocks contributing to the slump.
The decline in growth stocks was more severe than value stocks, with the ratio of growth to value favoring the latter. Bond yields have increased in April, benefiting value stocks, but are getting extended. Economic data, particularly Friday’s PCE report, is expected to impact rates, with a lower-than-expected report potentially reversing bearish sentiment. The AAII survey showed a decrease in bullish sentiment and increase in bearish sentiment, which may signal a needed change in extreme sentiment levels.
