Investors and traders started the week apprehensive after a 5.5% decline in the Nasdaq Composite Index, the largest since November 2022. The 10% decline in NVIDIA on April 19th further worried stock market bulls and reinforced bearish sentiment. However, a technical perspective suggested that corrections in a bull market or rallies in a bear market could shift sentiment to allow the prior trend to resume, which was expected after a key reversal on April 4th in the S&P 500.
Data from S&P Global indicated a decline in US equity investors’ risk appetite from 14% in March to 5% in April, reaching a three-month low. The American Association of Individual Investors (AAII) sentiment data showed declining bullish sentiment, with the bullish % dropping from 51.7% in March to 32.1% by mid-April. This decline in sentiment was expected to fuel the next market rally, according to analysis.
The weekly chart of the SPDR S&P 500 ETF Trust suggested a potential low as it closed above the 20-week EMA and near the weekly starc-band. The S&P 500 Advance/Decline indicator moved back above EMA, reversing a prior negative signal. A positive advance/decline number could indicate a move in the SPY to recent highs, potentially reaching yearly resistance levels.
The growth/value analysis showed a shift in market leadership as value stocks started to lead in February 2024, after growth stocks had been leading for most of 2023. The IWF/IWD ratio reflected this shift, with growth stocks outperforming value stocks last week but still in a downtrend. The historical importance of growth/value analysis in identifying stock market peaks and market dynamics was highlighted.
The Invesco QQQ Trust closed above the 20-day EMA, with the Nasdaq 100 Advance/Decline line attempting to flatten out. Positive market action was seen throughout the week, with a stronger-than-expected GDP report providing justification for new buying. Confirmed signals from A/D lines would indicate a shift in sentiment and potentially lead to a rise in bullish sentiment over the coming weeks.
Overall, the market outlook was tentative at the start of the week, with concerns about recent declines in key indices and sentiment indicators. However, technical analysis suggested a potential shift in sentiment that could lead to a resumption of the prior market trend. Positive market action throughout the week, combined with strong A/D numbers, may signal a return to bullish sentiment and potential market highs.