Advance/Decline Lines Still Point Higher But Not A Low Risk Buy Now

The stock market had a somewhat choppy week after a late decline on Tuesday stocks moved higher on both Wednesday and Thursday. The markets survived several economic reports including a higher-than-expected Consumer Sentiment and GDP with a slightly lower Consumer Confidence. The PCE Friday report was mixed but in early trading Sunday night the stock futures were not impacted as they have moved above the March highs.

It was another great month for the markets led by over 4% gains in the Dow Jones Utility Average, NYSE Composite, and Russell 2000. The S&P 500 and Dow Jones Transportation Average gained over 3% while the Nasdaq 100 was only up just over 2% as was the Dow Industrials.

For the week only the Nasdaq 100 was lower down 0.4% while the SPDR Gold Shares (GLD
GLD
) were up 2.7% and it gained 9.2% for the month. The iShares Russell 2000 had a good week up 2.7% while the S&P 500 and Dow Industrials were up less than 1%.

For the week on the NYSE Composite, 1963 issues were advancing and just 950 declining. It was also important that more stocks were making New Highs than New Lows on both the NYSE as well as the Nasdaq Composite. In Friday’s action on the NYSE there were 371 New Highs and just 12 New Lows.

The monthly chart of the Spyder Trust (SPY
PY

SPY
) shows strong gains for the past five months. The monthly starc+ band for April is at $528.75. That is not far above the March close at $523.21. The close was 18.4% above the rising 20-month EMA at $446.94 which is the highest level since 2021. This is a sign of how extended SPY is now getting.

For most of the past 15 years, the monthly S&P 500 Advance/Delcline line has been bullish and has often led prices higher. In June 2023 the A/D line made a new high, line a, which projected a new high for the S&P 500 and SPY.

At the end of the July-October correction, the S&P 500 A/D line dropped below its WMA for one month. By early November both the weekly and daily A/D lines were again making new highs, line b.

SPY had a March high of $524.61 which was well above the starc+ band at $514.93. This is a sign that SPY is in a high-risk buy area. SPY also exceeded the monthly starc+ band in January 2018 which was followed by a sharp 12% correction. Historically, SPY can stay above the monthly starc+ band for even longer but the market is now stretched. As I expected earlier this year several Wall Street strategists have continued to raise their year-end targets.

This does not mean we will see a similar percentage decline as a new decline may be more focused on sector rotation. The growth/value ratio chart of the iShares Russell 1000 Growth (IWF
IWF

IWF

IWD

The ratio now has support at line a. This means that growth ETFs like IWF may continue to be weaker than the IWD
IWD
. The MACD and MACD-His have both been diverging since late last year as indicated by lines c and d. This could be an early warning of a major top in the growth/value relationship.

In my sector review later in the week I will take a look at some of the negative technical readings for some of the growth ETFs.