New/old reasons for not buying stocks

The stock market tried to fight the selloff as media pundits came up with more reasons to argue why stocks shouldn’t move higher. Topping the new list is the fact that the dollar closed higher for the eighth consecutive week. This coincides with last week’s Reuters survey, where 81% of FX strategists surveyed believe the dollar is at risk of further gains. His outlook for 2024 is less optimistic.

On the weekly chart of the Dollar Index, the 38.2% resistance on the downside from the 2022 high at $115.06 has just been surpassed with the 50% resistance at $106.91. The March 2022 high is at 105.87 and the Stark+ Band is at 106.52.

Weekly On-Balance-Volume (OBV) is positive as it crossed its WMA in early August. Volume has been steady but well below levels seen in 2022. The Herrick Payoff Index (HPI) uses volume, open interest and price to determine money flows which is also positive at +22. It became positive with OBV only.

The stronger-than-expected ISM Services index last week, combined with a stronger dollar and higher crude oil prices, led some to suggest that inflation could remain high and prompt the Fed to raise rates further.

About a year ago one of the most bearish Wall Street strategists, Morgan Stanley’s Mike Wilson
M / s
Warned that “dollar surge could lead to crisis”. The argument is that earnings from tech giants like Apple
AAPL
Inc. (AAPL) and Microsoft
MSFT
Inc. (MSFT) will be hurt by a stronger dollar.

By the beginning of the year, the belief that a recession was inevitable and weak earnings expectations were often used as a major argument against buying stocks. Although both AAPL and MSFT reported dollar-driven earnings declines, overall earnings were stronger than expected.

The point of this discussion is that even though the outlook for both the dollar and crude oil is currently positive, it does not guarantee that the impact of these markets will be negative or positive for stocks. So I recommend using technical indicators like A/D Line, OBV and MACD to tell you whether the market is likely to go up or down.

Only one market, the Dow Jones Utility Average, was higher last week as it gained 0.6%. However, it is down 9.9% year to date and WK_DTS readings on its largest holdings are negative. It was another tough week for the Dow Jones Transportation Average as it fell 4% while the iShares Russell 2000 dropped 3.6%.

The Nasdaq 100 and S&P 500 were down 1.4% and 1.3%, respectively, while the Dow Jones Industrial Average was 0.8% lower. Market internals were weaker than average as 750 issues were advancing and 2301 were declining last week on the NYSE. On Nasdaq Composite, 1294 shares gained and 3458 shares declined.

Since the beginning of August, there have generally been more new lows than new highs on the Nasdaq Composite. For example, on Friday, 248 stocks made new lows while only 40 made new highs. 288, the reading will be more negative at new lows above the August peak on Line B. The new high was reached at 278 in July and although it quickly made a lower high, Line A, there was no divergence as the average did not make new highs.

Spider Trust (SPY
PY

detective
) is down 1.1% so far this month as the rally stalled at $453.67 and the decline has been a little more than expected as it hit the 20-day EMA at $416.06. Line A, in the $433 area, is important support. If it is broken on a decisive basis, the rising 200-day moving average lies at $416.06.

The daily S&P 500 advance/decline line turned back positive on August 28^th SPY opened at $442.65 and closed at $449.16 the next day, providing a good long entry. The S&P 500 closed slightly above its WMA on Friday and a strong bounce would see considerable upside. Of course, a day of solid selling would drop the A/D line well below its WMA. On-balance volume shows a similar bullish setup and may even break out either way.

Invesco QQQ
QQQ
Trust (QQQ) rose as high as $375 on Friday but closed at $372.58 due to a late selloff. It was above the flat 20-day EMA at $371.60 and the pivot at $372.09. The daily star-band is at $364.54 and key support is at $354.50, Line A, which runs through June.

The Nasdaq 100 A/D line still remains above its rising WMA but this will be an important week for the A/D line. The uptrend from the March low, Line C, was tested and held in August which is a positive sign. The downtrend would suggest a move above line B. repair is finished, As the A/D line turned positive, the relative performance (RS) moved above its WMA. The RS is still indicating that QQQ is a market leader.

Analysis of Ratios of iShares Russell 1000 Growth (IWF)
iwf
) to iShares Russell 1000 Value (IWD)
iwd
) still supports upside above price as it made a new high for the year last week. Growth ETFs look the most positive technically but remember to use stops. See updates on Twitter.