Market Health Tracking

Market got hammered Friday, in part due to worries about escalating tension between Iran and Israel. (Though if oil is not impacted much, the markets won’t end up caring). In addition, some big banks reported disappointing earnings.

The Naz was down 1.6%, leading to the third consecutive weekly decline. It is below the 21dma, but still above the 50dma. The S&P fell 1.5% and reversed below the 21dma and is testing support at the 50dma. Small Caps (Russell 2000) cratered 1.9% and growth stock were hurt even worse. (Note that NAZ is still trading inside days to the big Thursday reversal a week ago)

The CBOE Volatility index, or VIX, spiked Friday to the market fear gauge’s highest levels since late October on Iran concerns.

IBD says “If Mideast tensions ease, there could be a snapback rally in stocks. Various indicators suggesting the market is getting oversold also bolsters that hopeful case.”

Saturday, Iran “retaliated” in a very weak way. They apparently gave Israel and US a heads up, essentially saying “we will be sending drones and missiles so we don’t look too weak to the world, but please shoot them down because we don’t really want to get in a war with you because you would kick our butts”.

There are 7 distribution days on the Naz and 9 on the S&P, it is on the edge of a market correction, though some of the S&P days were not too bad. (These are counted over a 25 day period)

While IBD raised the market outlook to a confirmed uptrend yesterday, Friday’s negative action came as an expectation breaker. Instead of turning in further gains the market shifted lower and suffered more distribution. Leading names also were hit hard.

It’s unusual to change our market outlook and exposure level so quickly, but the market signals cannot be ignored. So we are back at “uptrend under pressure” and have reduced recommended exposure back to the 40% to 60% level.

The key thing this coming week is how the indexes act around the 50dma and 10-week line (which are almost the same thing).

Each market day, IBD produces a 15 minute or so video called “Stock Market Today”. They review the market charts and usually 3 stock charts. The discuss the health of the market. Starting last Friday, they are making the Friday shows with their senior market strategist, Mike Webster. He is very experienced in the CANCLIM system and particularly technical analysis. The first show last Friday was very good, but took 59 minutes. This show was also very good and was only 36 min. If that is your kind of thing, I think it is a good use of 36 minutes. They post these on Investors.com and YouTube. I can only post the link for YouTube.

Market Breaks Expectations; Coupang, Nvidia, Arista Provide Lessons | Stock Market Today (youtube.com)

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