The stock market’s weakness last Friday has carried over this week as the stock market is bracing for earnings from Nvidia later on Wednesday as well as the Federal Reserve’s favored inflation gauge on Friday.
The economic news over the past two weeks has made many investors as well as consumers nervous. The Consumer Sentiment Index from the University of Michigan dropped 10% from January and the retail sales recorded their largest drop in two years.
The decline in bullish sentiment has been evident since the early January highs and Tuesday’s Consumer Confidence came in at the lowest level since August 2021. From a technical perspective, declining bullish sentiment is needed for a correction in a positive trend.
I did not trust the spike in bullish sentiment to 42.3% the week of January 22 and last week it was at 29.2%. I would not be surprised to see even a weaker number in this Thursday’s survey as a reading under 25% would set the stage for the end of the correction.
On Tuesday’s market decline, there were signs that the selling was not broadly based. On the NYSE there were 1635 issues advancing and just 1153 declining but the declining volume was greater than the advancing volume. On the Nasdaq Composite, the numbers were more negative with just 1,745 advancing and 2,743 declining.
he data also indicates that there were more S&P 500 stocks advancing than declining. The Spyder Trust (SPY) had a low Tuesday of $589.56 which was close to the support at $586.12 from October 2024 high, line a. SPY dropped well below the starc-band during the day before closing at $594.24.
The S&P 500 Advance/Decline line rose on Tuesday to close back above its WMA. A move above the resistance at line b will be a sign that the recent decline is over. There is additional A/D line support at line c. The daily NYSE Stocks Only A/D and NYSE All A/D lines are just slightly below their EMAs.
The NYSE Composite was up 0.33% on Tuesday while the Nasdaq 100 was down 1.24% and the S&P 500 dropped 0.47%. These price declines were not supported by the A/D numbers which indicate to me that the selling was limited to a few large-cap stocks.
The Invesco QQQ Trust just exceeded the monthly pivot R1 at $537.51 last week and has had a low of $509.44 this week. The Nasdaq 100 A/D line has been leading the other A/D lines in 2025 as it staged an impressive upside breakout in January by moving above the resistance at line b. The A/D line has now dropped back to its rising EMA.
This view of limited selling in a few stocks is supported by the relative performance of the QQQ versus the First Trust Nasdaq 100 Equal Weighted (QQEW). So far this month QQQ is down 0.44% while the QQQ is down 1.72%. On a year-to-date basis, the gap is even wider with QQEW up 5.36% while QQQ is up just 0.41%. The RS of QQQ versus QQEW is declining which means that QQQ is weaker than QQEW. Therefore QQEW has been favored for new buying.
My weekly RS analysis for NVIDIA Corp. (NVDA) is negative as it is down another 5.8% this week. It is getting oversold as it has also tested its daily starc-band. Therefore a rebound on its earnings would not be surprising. On an intermediate-term basis, I am watching for a test of the yearly pivot at $114.89 even though I view the current decline as a correction, not a major top.
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