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Stock Market Technicals For Week of November 12, 2018

Weekly analysis of major stock indexes, Dow 30 stocks and 37 major ETFs. The report includes quantitative results and charts. If you are not a subscriber click here for more information.

Recap (November 5, 2018 – November 9, 2018) The S&P 500 rose 2.13%, Dow Jones Industrial Average gained 2.84%, NASDAQ advanced 0.68% and the Russell 2000 added 0.1%. The 10-year Note yield fell two basis points to 3.19%.

There is strong resistance around 2873 and the January highs in S&P 500. The probability that gains of last two weeks are due to a rebound rally instead of continuation of the uptrend is now higher. These rebound rallies are often signs of growing uncertainty and have much higher frequency in large corrections and bear markets. In conjunction with quantitative results below, we assign higher probability to whipsaw and a reversal to the downside in the next two weeks.

Last week there was a switch to low volatility stocks, an indication that traders feel uncertainty has increased. The low volatility S&P 500 ETF (SPLV) rose 3.6% versus only 0.6% for the high beta ETF (SPHB).

The low volatility trade is now getting crowded and unless there is a switch to risk-on soon, the correction may resume.

The PAL Market Bottom indicator still does not point to a bottom:

As we wrote last week:

The value of the indicator must rise above 54 for a preliminary indication that a bottom is forming and above 55 for confirmation.

The last value is 52 in the chart above.

Quantitative analysis of directional bias of Dow Jones Industrial Average

The results indicate near neutral short-term bias as of the close of November 9, 2018.

There are 17 stocks with positive directional bias and 13 stocks with negative. The ratio of positive to total is 0.57. A ratio above 0.7 normally indicates strong positive bias and a ratio below 0.50 usually indicates strong negative bias.

Note that the directional bias calculated above may at times lag price action due to changes in short-term market dynamics. The directional bias is calculated with DLPAL LS software.

Overbought/Oversold Dow Stocks in weekly timeframe

Overbought conditions occur when value of PAL OB/OS indicator is greater than 90 and oversold when the value of the indicator is less than 10. 

Based on PAL OB/OS indicator, there are five overbought stocks and one oversold in the weekly timeframe (most overbought shown first):

WMT is overbought but if price breaks above 107, then it could get even more overbought:

MCD has a long history of staying overbought for extended periods of time before taking a breather:

AAPL is oversold offering a higher probability long in case of a bounce off support near 192:

Overbought/Oversold ETFs in weekly timeframe

Overbought conditions occur when value of PAL OB/OS indicator is greater than 90 and oversold when the value of the indicator is less than 10. 

Overbought/oversold conditions based on our list of 37 popular ETFs (only overbought and oversold tickers are shown.)

The U.S. dollar index (UUP) and Retail ETF (XRT) are overbought while commodities and crude oil ETFs are oversold.

XRT could forge higher and become more overbought:

USO often rebounded in the recent past from oversold levels:

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Disclaimer:  No part of the analysis in this blog constitutes a trade recommendation. The past performance of any trading system or methodology is not necessarily indicative of future results. Read the full disclaimer here.

Charting program: Amibroker

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