Druitt’s Weekly Data Charts

Week Ending June 5, 2020

   All four major stock indices closely tracked by the Weekly Data Charts newsletter produced huge weekly price gains this past week, capped off by monster daily gains on Friday in response to a surprisingly strong monthly employment report from the Bureau of Labor Statistics. The top performing index on a percentage basis was the Dow Transportation Stocks Average that gained +903 points (+10.07%) to close at 9,872. The next best performer on a percentage basis was its companion Dow Industrial Average that gained +1,727 points (+6.81%) to close at 27,110. The broad-based S&P 500 Index rose by +149.62 points (+4.91%) to close at 3,193.93.  For these three indices their Friday closing prices were their highest daily and weekly-close prices for their recovery rallies in place since March 23. But, none reached the promised land of setting new 52-week or all-time price highs. The technology stock-heavy NASDAQ Composite Index that rose by +324.21 points for the week (+3.42%) to close at 9,814.08 did reach that promised land by setting a new all-time weekly-close price high, topping its previous all-time weekly-close high from February 14 of this year at 9,731.18. The NASDAQ barely missed setting a new all-time daily-close high, falling short of topping its February 19 daily-close high at 9,817.18.

   Price momentum data from the NYSE and the many ratios and moving averages of that data constructed and tracked by this newsletter provided strong confirmation of these weekly price rises. This was especially true among the 5-week through 40-week moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics. The NYSE produced a weekly ratio of 87.7%, an exceptionally high figure by historical standards. This was in fact the third consecutive week that the NYSE produced a weekly “percent of stocks rising” ratio equal to or greater than 82.0%.Over this three-week period which began on Monday, May 18 the 5, 10, and 20-week moving averages of NYSE weekly “percent of stocks rising” ratios have all risen from levels below the critical 50.0% line to levels comfortably above that mark. The 30-week moving average and the 40-week moving average which were already above the 50.0% line on May 18 have increased their cushions above that line. The short-term 5-week moving average now stands at 68.94%, the 10-week average at 64.58%, the 20-week average at 51.71%, the 30-week average at 53.36% and the 40-week average at 53.99%. As these figures show, none of the 5-week through 40-week moving averages is in any sort of imminent danger of falling back below the 50.0% line. That being the case, the chance that the major stock indices might suffer any sort of serious price trend reversal is virtually zero over the short to intermediate-term time frame. Only brief, profit-taking “pullbacks” which do not threaten the continuation of the upward price trends might take place.

   Among the new high/new low data-based moving averages the big news of the week was the accomplishment of the NYSE in finally posting a week with more than 100 weekly new highs. The NYSE produced 143 weekly new highs versus just 17 weekly new lows for a weekly new high/new low ratio of 89.4%. Weekly NYSE new high/new low ratios rose at all moving average time periods except the intermediate-term 20-week period where it fell by just -0.3% to 47.6%. Moving averages pf NYSE weekly new 52-week highs rose once again at the 5-week and 10-week moving average time periods, but continued to fall at all three 20-week through 40-week time periods. However, moving averages of NYSE weekly new 52-week lows continued falling at all five 5-week through 40-week moving average time periods. Absent an immediate expansion of the NYSE weekly “New Low” list the major stock indices will be highly likely to continue rising in price against little to no selling opposition.

Yield spread data from the U.S. bond market was overwhelmingly bullish for the major stock indices for a second consecutive week. The Corporate Bond/Treasury Bond Yield Spread fell to +108 basis points from +142.5 basis points one week ago. This was its third consecutive weekly decline since the week that ended on May 15 and lowered the Yield Spread to its lowest level since the week that ended on March 6. The “Merrill Lynch Confidence Index” produced a third consecutive strong weekly rise, moving up to 43.41 from 41.20 one week ago. This strong weekly rise was mostly on account of another large drop in the “BB”-rated Bond Index yield to 4.63% from 5.00% one week ago. The “BB”-rated Bond Index yield has declined by -136 basis points since posting a short-term high yield inflection point on May 15 at 5.99%.

 

Our long-term chart of the S&P 500 Index which uses only its weekly-close prices also compares that index with the Merrill Lynch “BB”-rated Bond Index yield. On the chart above we have divided the S&P 500 price line by a factor of 10 and multiplied the “BB”-rated Bond Index yield by a factor of 10 for scaling purposes. Levels shown for specific dates on both data series are actual, unscaled levels.

 The S&P 500 portion of the chart shows that there are few remaining technical obstacles to the S&P continuing to rise until it at least matches its February 14 all-time weekly-close price high at 3,380. The old, broken “Trump Rally” up-trend line of rising November 4, 2016 and March 23, 2018 weekly-close lows still remains as a potential technical restraint, but it is currently at approximately 3,325 and by mid-July will have risen above the February 14 all-time high.

The “BB”-rated Bond Index yield portion of the chart shows that as of this past week it has fallen down through and below a potential technical support at its May 24, 2019 “lower high” yield of 4.84%. There are few if any technical obstacles between its current level of 4.63% and its February 21 all-time yield low at 3.51%.

The entire chart history demonstrates how closely correlated are “BB”-rated Bond Index yield intermediate to long-term yield highs with S&P 500 intermediate to long-term weekly-close price lows and vice-versa. What this long history tells us is that a continuing downward trend by the “BB”-rated Bond Index yield will result in a continuing upward trend in the S&P 500 price. For the present, the key technical level for the “BB”-rated Bond Index yield is that May 24, 2019 “lower high” yield at 4.84%. As long as the yield remains below this level we must presume that it will continue trending downward.

 

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Week Ending June 5, 2020 s

New High/New Low Ratio Moving Averages Charts

Week Ending June 5, 2020

 

All four major stock indices closely tracked by this weekly newsletter produced huge weekly price gains this past week, capped off by monster daily gains on Friday in response to a surprisingly strong monthly employment report from the Bureau of Labor Statistics. The top performing index on a percentage basis was the Dow Transportation Stocks Average that gained +903 points (+10.07%) to close at 9,872. The next best performer on a percentage basis was its companion Dow Industrial Average that gained +1,727 points (+6.81%) to close at 27,110. The broad-based S&P 500 Index rose by +149.62 points (+4.91%) to close at 3,193.93.  For these three indices their Friday closing prices were their highest daily and weekly-close prices for their recovery rallies in place since March 23. But, none reached the promised land of setting new 52-week or all-time price highs. The technology stock-heavy NASDAQ Composite Index that rose by +324.21 points for the week (+3.42%) to close at 9,814.08 did reach that promised land by setting a new all-time weekly-close price high, topping its previous all-time weekly-close high from February 14 of this year at 9,731.18. The NASDAQ barely missed setting a new all-time daily-close high, falling short of topping its February 19 daily-close high at 9,817.18.

 

The six various time-length moving averages of NYSE daily ratios of new 52-week highs divided by that day’s total of both new 52-week highs and new 52-week lows are confirming this past week’s strong weekly price rises by the four major U.S. stock indices. All but the intermediate-term 100-day moving average produced weekly rises of their own, and it declined for the week by just -0.1%.The NYSE produced a 5-day average new high/new low ratio this past week of 94.8%/day. This is an exceptionally high 5-day average by historical standards that we should not expect will be produced each and every week. However, it would not be unprecedented for the NYSE to produce daily ratios that exceeded an average of 92.0%/day for as many as five consecutive weeks. It did so as recently as from mid-December 2019 through mid-January 2020. During this five-week period all four major stock indices rose to new 52-week price highs. All but the Dow Transportation Average rose to new all-time price highs that they posted in February.

Notably, the longest-term 200-day moving average of NYSE daily new high/new low ratios rose for a third consecutive week, ending today at 64.7%. Its weekly-close low at 62.1% was posted on Friday, May 15. The associated S&P 500 daily-close price low was made two days earlier on May 13 at 2,820. We will offer that this was not sheer coincidence. We can now speculate that the S&P 500 rising price trend will likely continue for as long as the 200-day moving average continues to trend upward. Upcoming daily ratios due to drop and be “replaced” in its calculation will continue to be eminently beatable percentages for the next two weeks through Friday, June 19 which will average 61.6%/day. But, starting on Monday, June 22 that “replacement” average will rise to 90.9%/day through Thursday, July 2 (markets will be closed on Friday, July 3 for the Independence Day Holiday). We cannot automatically assume that the NYSE will produce equal or higher ratios during this two-week period. We therefore should be prepared for the stock market rally to at least take a pause from June 22 through July 2.

This week’s table will show that the three shortest-term 10-day, 20-day and 50-day moving averages of NYSE daily new high/new low ratios will stand a very good prospect of again rising simultaneously in the upcoming week of June 8-12. The same cannot be said of the following week of June 15-19. The shortest-term 10-day moving average calculation must “replace” the ratios produced this past week which averaged 94.8%/day during that week. It could very easily decline. Since this NYSE daily new high/new low ratio moving average historically has the highest and most consistent correlation with the S&P 500 as to direction of movement we should not be surprised to see the stock rally stall or even “pull back” during this week. Note that this will very nearly coincide with the two-week period during which the longest-term 200-day moving average can be expected to decline or stall out its rise. The NYSE daily new high/new low ratio moving average data is clearly indicating that a pause or a “pullback” by the major stock indices will likely consume the final two weeks of June.

This week’s regular table showing closing levels for the six moving averages of NYSE daily new high/new low ratios today and on May 29, their direction of movement and net change for the week that ended today, and upcoming averages daily ratios due to drop and be “replaced” in their respective moving average calculations for the next two weeks through Friday, June 19 is above.

We will point out that the short intermediate-term 50-day moving average achieved two bullish milestones this past week. It easily crossed above the important 50.0% line and it also executed a bullish crossing through and above the next-longer 100-day moving average.

Our chart  above this week is a divergence chart. Shown below is the divergence or difference between the short intermediate-term 50-day moving average of NYSE daily new high/new low ratios and the longest-term 200-day moving average using daily-close data since April 2, 2018. When the divergence line crosses above the Zero Line that is when the 50-day average has risen to convergence with the 200-day moving average. The chart history shows that once on the rise the divergence line has not failed to make such a crossing above the Zero Line.

We have placed a horizontal red line at the divergence line high it made on September 13, 2018 at +6.05%. This should be our minimum upside target for the divergence line. With the 200-day moving average currently at 64.7% the 50-day moving average must rise to 70.75% for the divergence line to reach this horizontal line. This provides us with an initial upside target for the 50-day moving average. It will be very unlikely that the S&P and other major indices might sustain any significant or long-lasting price declines prior to the 50-day moving average reaching at least this initial target level.

The September 13, 2018 divergence line high is significant for another reason. It was the maximum positive divergence associated with the S&P 500 then all-time daily-close price high it made on September 20 at 2,930 from which its major intermediate-term price collapse to its ultimate intermediate-term major daily-close price low at 2,351 was posted on December 24, 2018. If the divergence line were to fail to rise above the red horizontal line placed at this level then we should be on guard that this history might repeat itself.

 

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Week Ending June 5, 2020

New High/New Low Ratio Moving Averages Confirm Stock Up-trends

—This Week’s Market

 

The chart above from the Stonehenge Analytics in-house chart library is a comparison of the three shortest-term 10-day, 20-day and 50-day moving averages of NYSE daily new high/new low ratios using daily-close data since April 2, 2018.We have added three new notations to this chart since it was last displayed on May 15. We have noted the 10-day moving average short-term daily-close low it made on May 14 at 53.0% and have placed a horizontal red technical support line at that point. We have also noted today’s “higher high” made by the 10-day moving average at 80.0%. Lastly we have noted the highest level reached to date at 67.5% by the longer short-term 20-day moving average which it reached this past Tuesday, May 26. This might or might not turn out to be its high inflection point as well. This will be determined this upcoming week.

The short intermediate-term 50-day moving average is on the verge of executing a bullish crossing above the critical 50.0% line, something it will have achieved by next Friday, June 5. During the 50-day moving average recovery from its deep low made on December 28, 2018 it crossed above the 50.0% line on February 21, 2019. As the chart history shows, it continued to rise for an additional two months through April 11, 2019. During these two months the S&P 500 and other major indices continued trending upward in price. The S&P 500 rose by +4.10% from February 22 through April 11, 2019. Our opinion is that the very first technical test for the 50-day moving average will come when it has risen to challenge its longstanding technical resistance/support zone at the horizontal brown line we have placed across its September 13, 2018 high at 65.6% and its later short-term lows from June 27, 2019 at 66.2% and October 10, 2019 at 65.8%. A “refusal” by the 50-day moving average to move decisively up through and above this technical resistance zone will be a very bearish signal for the major U.S. stock indices. We do not anticipate that this technical test might take place prior to the final week of June.

Absent a sudden and unexpected turn downward by the two short-term 10-day and 20-day moving averages the data on this chart paints a bullish trend continuation picture for the S&P 500 and other major indices. Any downward price movements will likely be of short time duration and of the “pullback” variety.

Our upside target range for the S&P 500 for the coming week is from 3,130 to 3,150. To the downside we would be surprised if the S&P traded below the 2,950 to 2,970 price range. While a brief, one-week “pullback” will be possible we expect that the S&P will end the week with another weekly price gain.

Druitt’s Weekly Data Charts

Week Ending May 29, 2020

This week’s chart package presents historical data which suggests that while nothing more threatening than a short-term price “pullback” by the S&P 500 and other major indices will likely take place in June the potential for a sustained, severe and rapid price decline commencing early in July and lasting well into August is already very evident.

Our chart above this week is a “stand alone” chart of the short intermediate-term 10-week moving average of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline statistics. We are displaying this chart this week because there is a very good chance that the May 29 level at 64.49% will turn out to be the peak high inflection point for the 10-week moving average for the recovery rally since March 23. Over the upcoming three weeks through Friday, June 19 weekly ratios due to drop and be “replaced” in the 10-week moving average calculation will average 78.5%/week. This is a 3-week average that is very unlikely to be matched by the NYSE. The question thus becomes the rate at which the 10-week moving average will fall. With such large ratios due to be “replaced” that decline could be very rapid indeed. If so, then we should expect that the S&P 500 will execute a price “pullback”. No more than a “pullback” should be expected because the NYSE would have to produce weekly “percent of stocks rising” ratios that averaged 30.5%/week or less to lower the 10-week moving average to the critical 50.0% line by June 19.

   There will however be a 5-week time period commencing on Monday, July 6 during which weekly ratios due to be “replaced’ in the 10-week moving average calculation will average 65.3%/week from July 6 through August 7. The 10-week moving average will be highly likely to fall for this entire 5-week period and will commence that decline from a much lower level than the current 64.49%. This will be the time period during which the major stock indices will be vulnerable to sustained and rapid price decline accompanied by the 10-week moving average moving below the 50.0% line.

   All four major U.S. stock indices tracked by this weekly newsletter ended this holiday-shortened week with weekly price gains. In a departure from their behaviors since March 23 the technology stock-heavy NASDAQ Composite Index turned in the weakest weekly performance. The NASDAQ rose by +165.29 points (+1.77%) for the week. This compares unfavorably to rises by the Dow Industrial Average of +917 points (+3.75%), the Dow Transportation Average of +499 points (+5.90%) and the S&P 500 Index of +88.86 points (+3.01%).  In one respect however all four indices performed equally. All four closed on Friday at their highest weekly-close prices for their recovery rallies from their jointly-made March 23 major intermediate-term price lows. For the NASDAQ Composite this was at 9,489.87. For the Dow Industrial Average it was at 25,383 and for the Dow Transports Average it was at 8,969. For the S&P 500 the new weekly-close price high was posted at 3,044.31.

   Price momentum data from the NYSE and the many ratios and moving averages of that data constructed and tracked by the Weekly Data Charts newsletter mostly confirmed this week’s bullish price movements by the four major stock indices. This was especially so for the new high/new low data-based series at both the short-term 5-week and short intermediate-term 10-week moving average time periods. Moving averages of NYSE weekly new 52-week highs rose and moving averages of NYSE weekly new lows fell at both time periods. Both moving averages of NYSE weekly new high/new low ratios rose. The short-term 5-week moving average moved up to 64.7%, putting it through and above a significant technical resistance support zone at 56.4% to 57.7%. Both the 5 and 10-week moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline data moved well above the 60.0% mark to 65.3% and 64.4% respectively.

At moving average time periods from 20-weeks through 40-weeks the results were less consistently bullish. Moving averages of NYSE weekly new 52-week highs continued to fall at the 20, 30 and 40-week time periods. But, moving averages of NYSE weekly new 52-week lows also fell at the 30 and 40-week time periods. This resulted in moving averages of NYSE weekly new high/new low ratios rising at the 30-week and 40-week time periods. Only the intermediate-term 20-week moving averages of NYSE weekly new high/new low ratios continued to fall. It is now below the 50.0% line at 47.9%.With upcoming weekly ratios due to drop and be “replaced” that will average 81.0%/week for the next six weeks through Friday, July 10 it is likely to continue to fall through that date. This “replacement” average is well above the current 5-week moving average that is now at 64.7%.

While the new high/new low data-based series were less consistently bullish at the 20-week through 40-week moving average time periods that was not the case for the NYSE weekly “percent of stocks rising” ratio moving averages. All three 20, 30 and 40-week moving averages rose for the week. The intermediate-term 20-week moving average crossed back above the critical 50.0% line to 50.82%. It was last at or above the 50.0% line in the week that ended on April 10.

Yield spread data from the U.S. bond market was very bullish for the major stock indices. The “Merrill Lynch Confidence Index” rose for a second consecutive week, moving up to 41.20 from 39.87 on May 22 and putting more firmly into place is May 15 level at 37.73 as at least a short-term low inflection point. This week’s strong move upward was mainly a consequence of the “BB”-rated Bond Index yield falling to 5.00% from 5.36% on May 22. This is the lowest yield for the “junk” rated “BB”-rated yield since it peaked at 8.27% on March 20.The Corporate Bond/Treasury Bond Yield Spread fell to +142.5 basis points from +151 basis points on May 22. This is the lowest Yield Spread since its peak at +316 basis points on March 20.

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Week Ending May 29, 2020 s

New High/New Low Ratio Moving Averages Charts

Weekly Charts

Week Ending May 29, 2020

All four major U.S. stock indices tracked by this weekly newsletter ended this holiday-shortened week with weekly price gains. In a departure from their behaviors since March 23 the technology stock-heavy NASDAQ Composite Index turned in the weakest weekly performance. The NASDAQ rose by +165.29 points (+1.77%) for the week. This compares unfavorably to rises by the Dow Industrial Average of +917 points (+3.75%), the Dow Transportation Average of +499 points  (+5.90%) and the S&P 500 Index of +88.86 points ( +3.01%).  In one respect however all four indices performed equally. All four closed on Friday at their highest weekly-close prices for their recovery rallies from their jointly-made March 23 major intermediate-term price lows. For the NASDAQ Composite this was at 9,489.87. For the Dow Industrial Average it was at 25,383 and for the Dow Transports Average it was at 8,969. For the S&P 500 the new weekly-close price high was posted at 3,044.31.

   The six various time-length moving averages of NYSE daily ratios of new 52-week highs divided by that day’s total of both new 52-week highs and new 52-week lows confirmed these weekly price gains with weekly advances of their own at the 10-day, 50-day and 200-day time periods. The 20-day moving average was slightly down by -0.5% for the week as was the longer intermediate-term 150-day moving average. Only the intermediate-term 100-day moving average recorded a weekly decline and that was by just -0.4%.With two of the three shortest-term 10-day, 20-day and 50-day moving averages rising while the third remained unchanged the historically strong positive correlation between the S&P 500 weekly price advances and at least two of these three NYSE new high/new low ratio moving averages rising simultaneously was again followed.

The most highly correlated moving average with S&P 500 price movement direction is the shortest-term 10-day moving average. It rose this week to a new post-March 23 daily and weekly-close high at 80.0%, surpassing its previous daily and weekly-close high from May 8 at 71.0%. This now establishes a bullish short-term up-trend for the 10-day moving average that matches and confirms the S&P 500 short-term price up-trend. The intervening daily-close low made by the 10-day moving average was at 53.0% on May 14. The associated S&P 500 daily-close price low was made on day earlier on May 13 at 2,820. Longer-term investment-oriented accounts can now be quite confident that unless and until the 10-day moving average takes out its short-term low at 53.0% to the downside there will be no chance that the S&P 500 and other major stock indices might be commencing a potentially damaging multi-week downward price movement. The 2,820 price level may also now be marked on S&P 500 price charts as an important technical price support level which must be broken to the downside if any potentially highly damaging intermediate-term downward price movement might be taking place.

“Replacement” columns in this week’s regular table show that there will be a moderate risk that both short-term 10-day and 20-day moving averages of NYSE daily new high/new low ratios might decline simultaneously in the upcoming week. If they do then the major stock indices would likely execute very short-term price “pullbacks”. However it is not a high risk that the two moving averages might both fall for the week. The NYSE would have to produce daily ratios that average less than 56.0%/day for that to happen. The more probable outcome will be that the NYSE will produce daily ratios that average higher than this “hurdle” rate and the S&P and major indices continue their now-confirmed rising price trends that began from jointly-made daily-close price lows posted on March 23.

Our regular table showing closing levels today and on May 22 for the six moving averages of NYSE daily new high low ratios, their direction of movement and net change for the week ending today, and upcoming averages daily ratios due to drop and be “replaced” in their respective moving average calculations for the next two weeks through Friday, June 12 is above.

The first “Replacement” column shows that should the NYSE fail to produce daily new high/new low ratios that average at least 56.0%/day in the upcoming week then five of the six moving averages would fall simultaneously. Under such a circumstance the S&P 500 and other major indices would be virtually 100% certain to sustain weekly price declines.

The intermediate-term 100-day moving average that is currently at 51.8% will be virtually 100% certain to continue to fall for the upcoming two weeks through June 12. It is also virtually 100% certain to fall below the critical 50.0% line. Historically, crossings by the 100-day moving average below the 100% line have been accompanied by S&P 500 reversals of initial “bounce” rallies from intermediate-term major price lows. We should therefore keep a very close eye on the recently-established S&P 500 technical price support at the 2,820 price level on the event that a downward price movement commences in the upcoming week.

Our chart above this week compares the short intermediate-term 50-day moving average if NYSE daily new high/new low ratios with the next-longer intermediate-term 100-day moving average using weekly-close data since May 30, 2008. Our chart above shows that a convergence of the rising 50-day moving average with the falling 100-day moving average is imminent. Also imminent is a crossing by the falling 100-day moving average below the critical 50.0% line. These concurrent events have happened previously. Arrows on the chart point to previous occurrences on June 1, 2008, October 18, 2013 and October 21, 2011. Our purpose in displaying this chart is to investigate S&P 500 price reaction at these three previous occurrences.

On October 21, 2011 the S&P 500 had completed the third week of its initial “bounce” recovery rally from a deep intermediate-term weekly-close price low made on September 30, 2011 at 1,130. It completed this upward price movement one week later on October 28, 2011 at a price of 1,285. For the next four weeks through November 25, 2011 the S&P gave back a substantial portion of this rally, falling to a weekly-close low at 1,158. From that “higher low” the S&P launched a sustained upward price trend which lasted through April 27, 2012 and raised the S&P by +21.1%.

On October 18, 2013 the S&P 500 was completing the second week of a rally from a very short-term, two-week “pullback”. This rally continued for an additional six weeks before again being briefly interrupted by a short-term two-week “pullback. During those six weeks the S&P rose by +3.5%.

On June 1, 2018 the S&P was in its tenth week of a sustained upward price move from a weekly-close price low it had made in March 23, 2018 at 2,588. It continues to rise for two additional weeks, topping out on June 15, 2018 at 2,779. It then suffered a brief two-week “pullback” to June 29 weekly-close low at 2,718 from which it resumed its upward price trend which continued through September 21, 2018 and ultimate final weekly-close price high at 2,929.

   The common element in all three cases is the presence of brief, two-week price “pullbacks” taking place one to two weeks after these convergences had taken place. We therefore should not be surprised if we again see the S&P sustain a brief, two-week “pullback” during the second half of June.

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Week Ending May 29, 2020

Happy Memorial Day!

Biotechnology Stocks Index ($BTK) Posts New All-Time Price High

The chart below depicts the NYSE-Arca Biotechnology Stocks Index ($BTK) since January 4, 2016. The $BTK Index posted a new all-time daily-close price high on Monday, May 11 at 5,569, topping its previous all-time daily-close high from September 27, 2018 at 5,460. This stock sector has been one of the very few bright spots among industry sectors throughout the entire “Coronavirus Crash” and subsequent recovery rally. The chart below shows that at its “Coronavirus Crash” daily-close price low on March 16, 2020 at 3,855 the $BTK Index managed to avoid making a decisive downside break through and below its previous major intermediate-term daily-close price low from December 24, 2018 at 3,890. The $BTK Index instead turned the March 19, 2020 price low into a successful re-test of the December 24, 2018 low. The establishment of a downward trend of successively falling intermediate-term price lows was avoided, setting the stage for a renewed attempt to “break out” to the upside through and above its previous all-time high from September 27, 2018. That upside “breakout” was achieved on Monday of last week.

Both technical indicators also avoided making new and lower lows than those they made on December 24, 2018. The four-year, four month up-trend line of rising lows on the $BTK price chart is thus confirmed. Over the near term of the next one to three months Stonehenge Analytics sees nothing that might prevent the $BTK Index from pushing higher into new all-time high territory. After all, the companies in this industry sector are the current hope of the world for producing a COVID-19 vaccine as soon as possible, as well as reliable and easily administered tests to detect both infections and the presence of antibodies with which further spread of the virus will be better prevented and understood. There are multi-billion dollar government contracts at stake for the companies which can satisfy these demands. There are sound reasons to be optimistic about their future economic and financial prospects.

While the Biotechnology stocks sector is one of the few whose potential downside risks are reasonably well known and are minimal compared to other stock sectors that does not mean that current prices are good entry points for long-term investment. A profit-taking “pullback” of some sort is bound to take place at some point. Our opinion is that the better time to invest in this sector will be when that profit-taking “pullback” takes place, likely sometime over the summer months.

Stocks Retreat on Sober Forecast by Fed Chief Powell NYSE-Arca Airline Stocks Index ($XAL) Falls Back to March 19 Low

   All major U.S. stock indices retreated this past week from their newly-made weekly-close price highs for their “Coronavirus Crash” recovery rallies which have been in place since March 23. There were two significant news items which provided excellent excuses to both speculative and investment-oriented accounts to sell and take profits gained during these recovery rallies. Item number one was news from Federal Reserve Chairman Jerome Powell who was speaking with the Peterson Institute. He said that the U.S. economic outlook was “highly uncertain” for the balance of 2020 and that more government fiscal aid to households and businesses “might be worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery.” This pronouncement from the head of the U.S. central bank ran counter to the prevailing optimism on Wall Street that the third and fourth quarters of 2020 would see a very strong economic rebound once lockdown orders were lifted. Item number two was the heating up of anti-China political rhetoric in the White House and the U.S. Capitol and action taken by the Trump administration to tighten down on Chinese technology giant Huawei’s access to U.S. produced semiconductor chips and chip technology. This action infuriated China’s President Xi who threatened unspecified retaliation against U.S. companies that trade with China. The specter of a renewal of the U.S.-China trade war gripped Wall Street, particularly since in an election year the Trump administration will be sorely tempted to paint China as the global boogeyman responsible for the Coronavirus pandemic, thereby diverting voter attention from the many failings of Trump in his handling of the pandemic in the U.S.

For the week the popular Dow Industrial Average fell by -645 points (-2.65%) to close at 23,685. Its companion Dow Transportation Stocks Average dropped by -571 points (-6.86%) to close at 7,761. The broad-based S&P 500 Index fell by -66.10 points (-2.26%) to close at 2,863.70 while the technology stock-heavy NASDAQ Composite Index once again put on the best performance on a percentage basis by falling -106.76 points ( -1.17%) to close at 9,014.56.

Contributing mightily to the extremely large weekly decline of -6.86% by the Dow Transportation Average was news from legendary investor Warren Buffet that he and his Berkshire-Hathaway Corporation had unleaded 100% of their considerable stock holdings in U.S. airline stocks during the first quarter of 2020. Declaring that the COVID-19 pandemic had in his view fundamentally altered the entire forward business structure of the U.S. airline industry Buffet made the judgment that this was no longer an industry that met his and Berkshire’s long-term investment objectives. The NYSE-Arca Airline Stocks Index ($XAL) which had never experienced any significant upward “bounce” from its colossal -67.3% price collapse from February 12 through March 19 headed back down to re-test its March 19 daily-close price low at 36.88. It ended the week at 38.65.

The chart below of the $XAL Index begins on January 4, 2016. No doubt Buffet and Berkshire were largely responsible for the price collapse that took place between February 12 and March 19. They were after all selling a very large volume of shares into a market that had very little in the way of demand for shares, and based on Buffet’s own words were not very discriminating about what prices they received for the shares sold. The chart shows a well-established, intermediate-term red down-tend line of successively falling January 20, 2016 and March 19, 2020 lows that is confirmed by both technical indicators above and below the price chart.

 

   In the Stonehenge Analytics judgement there is no reason for longer-term investment accounts to be tempted to purchase this beaten-down industry sector despite its “cheapness” relative to prevailing price levels just three months ago. Buffet is right in our judgment. The existing business model of airline companies is not economically viable in a world where “social distancing” is required to prevent the spread of the COVID-19 pandemic. Airplanes can no longer be filled to capacity with paying customers. The entire fare pricing structure through February 2020 had been based upon maximum capacity utilization per aircraft. If passenger planes must be flown at just 50% capacity then fares are way too low to cover costs. The entire global passenger airline pricing structure must be redesigned from the ground up. No airline in the world has any idea how they might be able to operate profitably in an enforced “social distancing” environment. In Buffet’s view the reason that no airline can figure out how to operate profitably in today’s COVID-19 world could be that it simply cannot be done. He very well could be right.

In-House Indicators Favor Little Net Price Change for Balance of May—

This Week’s Market

 

The table below shows closing levels on May 15 and on May 8 for six various time-length moving averages of NYSE daily new high/new low ratios, their direction of movement and net change for the week ending on May 15, and upcoming average daily ratios due to drop and be “replaced” in their respective moving average calculations for the next two weeks through Friday, May 29 is below.

Our table this week shows that five of the six moving averages of NYSE daily new high/new low ratios fell this past week. This goes a long way toward explaining why the four major U.S. stock indices all recorded fairly sizable weekly price declines. For the week that ended on May 15 the NYSE produced daily ratios that averaged just 44.7%/day. The two “Replacement” columns show that if the NYSE were to produce this same daily average through May 29 then in the upcoming week only three moving averages would fall. But, in the holiday-shortened week of May 26-29 (Monday, May 25 will be the Memorial Day Holiday and all markets will be closed) four of the six moving averages would fall if the NYSE again produced a daily average of 44.7%/day.

We have colored the May 8 closing levels for both short-term 10-day and 20-day moving averages Red to designate them as at least short-term weekly-close high inflection points. The first “Replacement” column shows that the longer 20-day moving average could turn back upward this upcoming week, but that the very short-term 10-day moving average will likely continue to fall. The second “Replacement” column shows that in the Memorial Holiday week the roles will likely be reversed. The 10-day moving average will likely rise while the 20-day average falls. The historical record shows that when the two short-term moving averages have moved in opposite directions the S&P 500 has produced very little net weekly price movement. Combined with the near certain likelihood that the 50-day and 100-day moving averages will move in conflicting and opposite directions through May 29 historical probabilities will strongly favor that the S&P 500 will show very little net price movement between today and May 29.

   Our in-house daily-data moving averages of NYSE advance/decline ratios and new high/new low ratios will favor that the S&P 500 will start the week to the upside. It may even rise back up to again test the obviously stiff technical resistance at 2,950. If so, the attempt to break through that resistance barrier will likely fail once again.  To the downside our maximum downside price target is once again at the April 21 intraday low of 2,727.

Druitt’s Weekly Data Charts

Week Ending May 15, 2020

Our chart above this week is a comparison of the short-term 5-week and short intermediate-term 10-week moving averages of NYSE weekly new 52-week highs since January 30, 2009. On the chart below we have highlighted previous instances since 2008-09 in which both moving averages of NYSE weekly new 52-week highs fell below the 100 new highs mark before reaching their weekly low inflection points. We have placed a horizontal red line at the 100 new highs mark. The chart history shows that there have been three previous instances comparable to our current circumstance. Our purpose here is to investigate these previous instances to see how quickly the two moving averages of NYSE weekly new 52-week highs rose back above the 100 new highs mark after they made their low inflection points.

After its September 9, 2011 low inflection point was made at 49 new highs the short-term 5-week moving average required 8 weeks to rise back above 100 new highs. The longer 10-week moving average required just 5 weeks to rise above the 100 new highs mark after it posted its low inflection point on October 19, 2011 at 53.9 new highs.

After its September 25, 2015 low inflection point was made at 43 new highs the 5-week moving average required just 4 weeks to rise back above the 100 new highs mark. The longer 10-week moving average required just 3 weeks to rise above the 100 new highs mark after posting its low inflection point on October 16, 2015 at 79.3 new highs.

After its January 18, 2019 low inflection point at 27 new highs was posted the short-term 5-week moving average required just 3 weeks to rise above the 100 new highs mark. The longer 10-week moving average required 4 weeks to rise above the 100 new highs mark after establishing its weekly-close low inflection point on January 25, 2019 at 56.1 new highs.

This brings us to our current circumstance. The short-term 5-week moving average of NYSE weekly new 52-week highs established its low inflection point at 20 new highs on April 10, 2020. Five weeks have transpired since that date and the 5-week moving average has only risen to 57 new highs. The NYSE has yet to record even a single week with 100 or more weekly new 52-week highs. To this point the only comparable historical case comes from September 9, 2011. However, there is a huge difference between S&P 500 price behavior after September 9, 2011 and after April 10, 2020. In 2011 the S&P 500 continued to fall in price for two additional weeks after the 5-week moving average low inflection point was reached before it reached its weekly-close low price inflection point on September 30, 2011. Measured from the S&P 500 weekly-close price low inflection point the 5-week moving average crossed back above the 100 new highs mark five weeks afterward.  In 2020 the S&P weekly-close price inflection point was recorded on March 20, 2020. Eight weeks later the 5-week moving average is only up to 57 new highs.

The short intermediate-term 10-week moving average of NYSE weekly new 52-week highs has yet to establish its weekly-close low inflection point. It will have a chance to do so this upcoming week. If the NYSE can produce more than 30 weekly new 52-week highs the 10-week moving average will rise and establish its May 15 level at 38.5 new highs as its weekly-close low inflection point. Over the upcoming six weeks through Friday, June 26 the weekly figures of NYSE new 52-week highs due to drop and be “replaced” in the 10-week moving average calculation will average just 24 new highs/week. We can be reasonably sure that the 10-week moving average low inflection point was in fact made this past Friday, May 15 at 38.5 new highs. The historical record from our investigation of previous comparable examples has shown that in all three cases the 10-week moving average had risen above the 100 new highs mark in no more than 5 weeks. For the 10-week moving average to adhere to this historical standard will require that the NYSE produce an average of 144 new highs/week for the next five weeks starting with the upcoming week of May 18-22. The Weekly Data Charts newsletter is highly doubtful that the NYSE can come remotely close to meeting this requirement.

Our detailed investigation of historically comparable low inflection points of both 5-week and 10-week moving averages of NYSE weekly new 52-week highs has shown that the current recovery rallies by the major U.S. stock indices are being accompanied by the most feeble recoveries by both moving averages of weekly new 52-week highs since the 2007-09 bear market. We have maintained that the inability of the NYSE to expand the weekly “New High” list is the Achilles heel of the recovery rallies in place since March 20. We believe that this historical investigation proves that claim to be correct.

   All four major U.S. stock indices closely tracked by the Weekly Data Charts newsletter suffered significantly large price declines this past week. These weekly declines put their Friday, May 8 closing price levels on the board as their weekly-close price highs for their respective recovery rallies which have been in place since March 23. The popular Dow Industrial Average fell by -645 points (-2.65%) to close at 23,685. Its companion Dow Transportation Stocks Average dropped by -571 points (-6.86%) to close at 7,761. The broad-based S&P 500 Index fell by -66.10 points (-2.26%) to close at 2,863.70 while the technology stock-heavy NASDAQ Composite Index once again put on the best performance on a percentage basis by falling -106.76 points ( -1.17%) to close at 9,014.56.

   While NYSE weekly price momentum data and the many ratios and moving averages of that data constructed and tracked by the Weekly Data Charts newsletter did not produce overly bearish weekly movements they were considerably less bullish movements than had been the case through May 8. The most conspicuous change to bearish from bullish weekly movements came for the moving averages of NYSE weekly new 52-week lows. The short-term 5-week moving average and also the intermediate-term 20-week and 30-week moving averages of NYSE weekly new 52-week lows all changed their directions of movement to rising from falling. The NYSE produced 130 weekly new 52-week lows this past week, its first week of more than 100 new lows since the week of March 31-April 3.The 5-week moving average rose to 64 new lows from 47 one week ago, thus making its May 8 level its weekly-close low inflection point for its steep decline that started from a high at 1,618 new lows posted on March 27.The 20-week moving average rose to 479.3 from 474.1 new lows and the 30-week moving average rose to 349.67 from 348.70 on May 8. If the NYSE continues to generate at least 100 new lows/week for the next three weeks then all three moving averages will continue to rise through Friday, June 5. Under this forward scenario the four major stock indices would likely continue to trend downward in price through June 5.

Moving averages of NYSE weekly new 52-week highs continued to languish and the failure of the NYSE to expand the weekly “New High” list remains the Achilles heel of the recovery rallies by the major stock indices. Though the NYSE did produce its highest weekly new lows figure since Match 6 it was still less than 100 new highs. The NYSE recorded 73 weekly new highs, raising the short-term 5-week moving average to 57 new highs from 46 one week ago. However, all 10-week through 40-week moving averages continued to fall. The 10-week moving average fell to 38.5 new highs, its lowest level since July 10, 2009. Moving averages of NYSE weekly new high/new low ratios rose at the 5-week and 10-week moving average time periods but fell at all 20-week through 40-week time periods.

Moving averages of NYSE weekly “percent of stocks rising” ratios derived from NYSE weekly advance/decline data fell across the board at all 5-week through 40-week moving average time periods. The 5-week, 10-week and 20-week moving averages all fell back below the critical 50.0% level, a definite bearish signal.

   Yield spread data from the U.S. bond market was unambiguously bearish for the major stock indices. The Corporate Bond/Treasury Bond Yield Spread rose for a second consecutive week, moving up to +166.5 basis points from +154.5 basis points on May 8. This week’s rise puts more firmly into place its May 1 level at +151 basis points as its weekly-close low inflection point. The “Merrill Lynch Confidence Index” fell to a new all-time low at 37.73, taking out to the downside its previous all-time low from May 1 at 38.77.  This week’s decline by the “Confidence Index” was entirely a result of a rise in the “BB”-rated Bond Index yield to 5.99% from 5.78% one week ago. The “A”-rated Bond Index yield was unchanged from last week at 2.26%.

 

Our long-term chart of the S&P 500 Index that uses only its weekly-close prices also compares that index with the “Merrill Lynch Confidence Index”. The S&P 500 price level on the chart has been divided by a factor of 10 for scaling purposes. Price levels for specific dates noted are actual, unscaled levels.

The “Merrill Lynch Confidence Index” is a bond market yield spread measure that is calculated by dividing the lower yielding, higher credit quality Merrill Lynch “A”-rated Bond Index yield by the higher yielding, lower credit quality Merrill Lynch “BB”-rated Bond Index yield. As the “Confidence Index” falls the yield spread between the two different credit quality classes of corporate bonds rises. As the chart history shows there has been a consistently positive correlation between the directions of trend movement of the S&P 500 and the “Confidence Index. This past week’s decline by the “Confidence Index” is therefore a bearish signal for the future price trend direction of the S&P 500 Index.

On the S&P 500 Index portion of the chart we should take notice that the recovery rally weekly-close price high from May 8 at 2,929 is exactly equal to the September 21, 2018 then all-time weekly-close price high. This is an obvious technical resistance zone that we have marked with the horizontal resistance line drawn from that September 21, 2018 weekly-close price high. Not far above this price level is another obvious technical price resistance at the then all-time weekly-close price high from May 3, 2019 at 2,945. It is our opinion that there is very little potential upside price appreciation over the short to intermediate term for the S&P 500 from its current level at 2,863.The current price is not an attractive price entry point for long-term investment-oriented accounts in our view. Downside risk in our opinion is at least to the dashed broken long-term up-trend line of rising weekly-close lows made on March 6, 2009, September 30, 2011, February 12, 2016 and December 21, 2018 that is currently at approximately the 2,650 to 2,700 price range. If the S&P 500 can hold at or above the dashed broken long-term up-trend line that would be a bullish development for it. We still expect that this broken long-term up-trend line will be tested before there might be an upside “breakout” by the S&P through and above the considerable technical resistance in the 2,929 to 2,945 price range.

   On the “Confidence Index” portion of the chart we must concede that there is no known technical support below its current level. The “Confidence Index” can be guaranteed to continue falling as long as the higher yielding, lower credit quality “BB”-rated Bond Index yield continues to trend upward. This yield posted a high at 8.27% on March 20 followed by a low yield posted on April 17 at 5.67%. If the “BB”-rated Bond Index yield were to retrace upward 50% of that yield difference it would rise to 6.97%. If the “A”-rated Bond Index yield remained unchanged at 2.26% then the “Confidence Index” would fall to 32.42. As of today three high name-recognition retailing companies have filed for chapter 11 bankruptcy protection since May 1–J. Crew, Neiman-Marcus, and J.C. Penny. This pace of bankruptcy filings by very visible and formerly well-capitalized companies in a variety of hard-pressed industries is going to increase in May, June and likely July. It will be exceedingly difficult for the “BB”-rated Bond Index yield to decline in this environment. There is no reason that we can think of for one to be optimistic that the “Confidence Index” might reverse its declining trend since January 21, 2020 anytime in the next three months.

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Week Ending May 15, 2020 s