Looking Forward to Stock Market Week 14
Under current stock market conditions, I am mostly staying in cash. Risk reward at this point is not favorable on either side. All the major market index ETFs that I track:
$SPY (S&P 500) $RSP (S&P 500 equal weight) $QQQ (NASDAQ 100) $IWM (Russell 2000 small caps) $MDY (S&P 400 mid caps) $DIA (Dow Jones) are trending bearish short-term and long-term.
On the daily chart, I consider price below 20-day moving average as short-term bearish and price below 200-day moving average as long-term bearish. That is the condition for all of the above.
Also, $IWM has gone through a death cross which is defined as the 50-day moving average crossing below the 200-day moving average.
Having said that, we are not facing a crisis or a calamity (like COVID for instance) where it would be appropriate to short. In fact, the risk of a quick upside move around the April 2 tariff event is high. And short positions could get wiped out.
At the same time, going long on the April 2 expectation would also be a wrong move.
We are seeing precious metals like Gold and Silver doing well. That includes the gold miners. So, $GLD, $SLV and $GDX.
We have also seen international markets like Europe, China and LATAM do well as well. $FEX, $FXI, $EWW, $EWZ.
I have exposure to these markets as of now. I do need to check (and I will) whether these markets still look good or not going forward.
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$SPX Sectors
The $SPX sectors situation is also quite bearish.
The XLK 0.00%↑ (Technology) that has 3 of the Magnificent 7 companies as underlying: $AAPL, $MSFT, $NVDA is trending perfectly bearish.
Price action on $XLK has been so bad that it just had a death cross last week. That is when the 50-day moving average of price crosses below the 200-day moving average.
And the $XLK is the biggest weight in the $SPX comprising more than 29% of the index. And it was also the worst performer last week down -3.5%.
Healthcare $XLV is the 3rd largest component of the $SPX at close to 11% and that is also trending perfectly bearish. This too is under a death cross situation.
Over 2025 to date though, these 2 sectors have had different returns. $XLK is down -11% and $XLV is up +5%.
$XLRE and $XLB are also trending perfectly bearish under a death cross. But $XLRE is only 2% of the $SPX and $XLB is even less than that, so they do not impact much.
It is not surprising that $XLP (Staples) was the best performer last week up +1.3%. It was also the only one of the 11 sectors that was positive. Staples is a defensive sector where the streets go to take shelter in volatile times.
$XLE right now has the best relative strength within the $SPX. But the daily chart pattern does not give me confidence. Plus, due to geopolitics, the $XLE is always more volatile and more unpredictable to trade. Specially during these times.
Nothing much to say about any other sectors. They all look weak as of now.
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Underlying Strength
I track the trending of the underlying stocks for the $SPY, $QQQ and $IWM. This gives me another picture of strength or weakness of the markets.
The $SPY has 37% of underlying stocks whose prices are above their 20-day moving average. This is improvement from prior week when it was 34%.
The largest companies by market cap whose price is above the 20-day moving average are: $BRK, $TSLA, $JPM, $V, $XOM, $UNH, $KO, $TMUS, $CVX, $PM.
For the $QQQ, the number of stocks with their price above 20-day moving average actually declined this week to 25% from prior week's 31%.
For the $IWM, the numbers remained mostly steady. This week is 24% compared to last week's 25%.
To me this looks like a bit of flight to safety where the $SPY underlying stocks are considered safer.
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$SPY Weekly Candle is a bearish engulfing pattern
Question to ChatGPT: The $SPY weekly candle is a bearish engulfing pattern when compared to last week's weekly candle. What does that signify and what is the probability of price being down next week as well?
First answer:
A bearish engulfing pattern on the SPY weekly chart is a significant technical signal. It occurs when the current week's candle completely engulfs the previous week's candle, meaning the current week opened higher (or near the previous close) and closed lower than the prior week's open. This suggests a shift in momentum from bullish to bearish.
What Does It Signify?
Potential Trend Reversal – If SPY has been in an uptrend, a bearish engulfing pattern could indicate the beginning of a downtrend or at least a pullback.
Increased Selling Pressure – The larger red candle suggests that sellers overwhelmed buyers throughout the week, leading to a strong move down.
Bearish Sentiment – It reflects a change in sentiment, often due to macroeconomic events, earnings reports, or investor fear.
Probability of a Down Week Next Week?
While no pattern guarantees future price movements, a bearish engulfing pattern on the weekly chart has a higher-than-average probability of leading to further downside. Here’s why:
Confirmation Needed – A break below this week's low next week would confirm bearish momentum. If SPY gaps down or opens weak, the downside scenario strengthens.
Volume Matters – If the bearish engulfing occurred on higher-than-average volume, the probability of continuation is even higher.
Support Levels & Market Context – If SPY is approaching a strong support zone (like a key moving average or previous demand zone), the down move might be limited. However, a break below key levels would fuel more selling.
Macro Factors – If macroeconomic data (such as inflation reports, FOMC statements, or job numbers) align bearishly, the likelihood of further decline increases.
Historical Context & Probabilities
Statistically, when a bearish engulfing pattern appears on the weekly chart of SPY:
There is roughly a 60-65% chance of downside continuation in the following week.
If the pattern occurs at major resistance or near all-time highs, the probability increases.
If it's part of an extended downtrend, it could signal acceleration to the downside.
Final Thoughts
Watch for confirmation early next week (break below this week's low).
Monitor volume and macro events for further validation.
If SPY gaps up or shows strength, the bearish signal could be invalidated.
End of answer by ChatGPT.
Picture 1 is last 6 weeks of $SPY. Each candle is 1 week. Last candle is the bearish engulfing candle.
Picture 2 is the volume for last 6 weeks. It was much lower than the last 2 weeks but not the lowest in the last 6.
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Precious Metals
Is the precious metals trade still on? Gold $GLD, Gold Miners $GDX and Silver $SLV have been on a run.
Also add Copper $CPER to that list.
Their year-to-date returns are fantastic:
$GDX +34.39%
$CPER +26.99%
$SLV +17.74%
$GLD +17.32%
Now, the question is whether this run will continue or not.
Many are calling for some profit taking or even a pullback with the expected thought process that nothing can keep going up.
I like to observe though as to what is happening instead of deciding (predicting) when something has gone up or down too much too fast.
Here is what I see in the trending.
All 3, $GLD, $GDX and $SLV, are still trending perfectly bullish. Meaning their price is above all the short-term and the long-term moving averages.
Yes, $GLD does look a bit oversold based on the RSI reading of 71. However, the RSI is still rising. Also, I notice that in the recent past (Feb - Mar) also the RSI was somewhat oversold. Price took a little breather and then continued going up.
So, I am going to keep watching the trend and close my long positions only when I see price falling below some short-term moving averages.
$CPER price has fallen below its 5-day and 10-day moving averages. So, there is a little more to think about there. I do not hold it and will not go long for now.
My system is much more focused on the moving averages than the RSI. I use RSI as supporting indicator only.
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Magnificent 7 + Big Tech
There is a point in time when the Magnificent 7 and Big Tech are going to reverse just because their price action looks so bad. The question is when?
Right now, $NVDA and $MSFT have a death cross. Meaning the 50-day moving average of their price is below the 200-day moving average of price.
Only $CRWD, $META and $NFLX price is above their 200-day moving average.
Only $TSLA has its price over 20-day moving average.
The $TSLA phenomenon shows up in last week's returns. $TSLA was the only green.
Here are all the returns in the order of best to worst.
$TSLA +5.97%
$AAPL -0.17%
$CRWD - 1.42%
$AMZN -1.78%
$NFLX -2.75%
$MSFT - 3.18%
$META -3.27%
$NOW -3.62%
$GOOGL -5.89%
$NVDA -6.82%
$AVGO -11.76%
The picture shows the year-to-date returns, and it is quite bad. Only $NFLX and $CRWD are green. Most of them have double digit losses.
As comparison, for year-to-date, the $QQQ is down -8.27% and $SPY is down -5.19%.
So, I am not ready yet to play for a mean reversion. Last weekend it looked like we would see a mean reversal and we did not.
The prudent thing to do would be to wait and confirm the reversal is actually happening before jumping in.
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International
International stock markets have outperformed the US stock markets this year.
There are changes in their trending though. China $FXI and Europe $FEZ are not looking as strong anymore. Although, from long-term perspective, they still look fine.
Mexico $EWW was flat and Brazil $EWZ was down last week. I have small short-term positions in them and need to decide next steps.
India $INDA seems to be coming back.
Last week though all of them were down.
$EWW -0.15%
$INDA -0.37%
$FEZ -1.79%
$FXI -1.97%
$EWZ -2.30%
The best performing stock markets last week were the ones that I do not track very closely.
$TUR +6.17%
$EIDO +4.80% (Indonesia)
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That is the summary for this week. Have a great week ahead and good luck on your trading. I will be posting regularly on the X platform during the week.