It's funny what a difference a week can make in the markets. Up until last week, the equity market picture looked rather bleak, with investor sentiment waning and record-setting volatility. But all of that seemed to have subsided in last week's trade as the major averages marked their strongest week in quite some time. On Friday, the Dow Jones Industrial Average rose 91.64 points, or 0.4%, to 24,831.17, marking its seventh straight positive session, its longest winning streak since a similar stretch that ended Nov. 8, 2017. The S&P 500 rose 4.65 points, or 0.2%, to 2,727.72, up 1.5% and finishing the week above its 50-DMA. The Nasdaq Composite Index meanwhile, lagged behind its peers, finishing down 2.09 points, or off less than 0.1%, at 7,402.88, and ending its multiday run-up of five consecutive advances after Nvidia reported lackluster results.
Both the Dow Jones Industrial Average and the S&P 500 is more than 5% below their record highs and have been in their longest stretch in correction territory since the financial crisis of 2008. Moreover, both indices dropped below their 200-DMA recently and before breaking above their 50-DMA last week. The chart below identifies the S&P 500 breaking below the 200-DMA intraday, but managing to close above the key support level intraday last week.
“Ari Wald, head of technical analysis at Oppenheimer, said that the number of net new lows had been dropping, a trend that suggests “the selling in stocks is getting less bad.” He added, “This means that we've been holding up well in periods of consolidation and that the market has been finding a base. This is setting us up for the next move higher in the bull market.”
While there were many positive takeaways from the market's performance last week, it remains important to continue factoring in the macro-headwinds. Such headwinds could serve to stall out a rally that investors are cheering. But before we denote the macro-headwinds, let's take a look at one indicator that has historically forecasted strong market performances nearly 90% of the time.
The ratio of rising stocks on the New York Stock Exchange to the number of falling stocks is known as the “advance/decline line”. It has a high accuracy rate of forecasting market moves and was recently noted in Heritage Capital's weekly letter to clients by Paul Schatz, the firm's president. Currently, the NYSE's advance/decline line is at an all-time high, as seen in the following graphic from StockCharts, which Schatz included in an email.
With some of the more positive market commentary and potential now detailed, let's get back to those macro-headwinds that may prove to impact markets to one degree or another in the weeks and months ahead. We've taken the liberty of listing those macro-headwinds below: