Weekly Lookout of US Markets – 04-Nov-2019

Updated: Dec 6, 2019

Key Summary of US Markets:

· As expected, the key indices SPX and NDX led the markets higher, to reach new all time respective highs

· #DJI is clearly the laggard, as it failed to make a new higher high, but can be expected to make that attempt during the week as the market leader NDX is expected to remain strong

· However one should not fall in love with this upside, as there are many concerning signals, including declining volumes in equity markets

As expected, the leading markets #NDX and #SPX broke above previous all-time highs. In near term it is a bullish sign as the S&P posted fourth green week in a row, and NASDAQ had fifth.

S&P 500 Daily Chart

Among the markets, DJI remained considerably weak, as it failed to test earlier all time high. If the markets stop going higher, DJI can be expected to fall faster than SPX or NDX.

Dow Jones Industrial Average DJIA Daily Price Chart

However we advise not falling in love with this upside. There are signs that this breakout momentum may not be sustainable. We have not seen a significant increase in volume compared to preceding weeks in both SPY and QQQ – the index tracking ETFs. Without supporting volume the breakouts usually are not sustainable for long.

Below we can see on the bigger picture (weekly) that the volumes have been declining over past one month. While the volumes slightly increased in last week, they are below recent average and are much lower than earlier in the year when we saw a big rally.

QQQ ETF Weekly Price Chart

Similar observation can be made in SPY.

SPY ETF Weekly Price Chart

Some encouraging fundamentals and data this past week:

While we should stay with the uptrend and remain bullish, we have to remain cautious about the upside, until we see volume coming in. Bullish outlook from the FED along with better than expected job numbers and GDP estimates may have triggered the rally. However lack of supporting volume suggests the market did not fully embrace this news the way it usually had done in the past.

Outlook ahead:

Expectation for the week is – After the rally last week and gap up opening of the week, we can expect some pullback, and a little consolidation. Unless new volume comes in, the rally is not going to continue much longer. Though market is still in uptrend, it may signal correction in coming weeks.

Traders and investors should play with caution.

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