Most polls show that President Biden continues to get low marks on the economy. According to Reuters, the economy has been the most important issue ”Concerning Americans for 117 weeks.”
Some in the financial media, who look at the data closely, can’t understand what the public and many economists are getting wrong. For example, the median forecast for last week’s preliminary reading for Q4GDP was 2.0% but the actual reading came in at 3.3%.
Most economists were too pessimistic for 2023 and that still seems to be the case for 2024. The Conference Board “forecast two-quarters of slightly negative GDP growth in Q2 and Q3 2024 that will be broadly felt across the economy. “ They are expecting that consumer spending growth “will slow in Q1 of 2024 and contract in Q2 and Q3.
The University of Michigan Consumer Sentiment is one of several economic indicators that I follow using technical analysis. It plunged in 2020 from 101 to 71.80 as the support was decisively broken.
The Sentiment rebounded into early 2021 and reached the former support now resistance, consistent with a bear market rally. The ensuing plunge in sentiment reached 50 in the summer of 2022 as the bear market in tech stocks took its toll.
As the Sentiment rebounded in early 2023 it broke the downtrend, line b, suggesting a change in trend. The decline last October held above the prior lows and the strong preliminary January reading of 78.8 is well above the prior high.
This week we get the final January reading on Consumer Confidence on Tuesday with the Michigan Consumer Sentiment on Friday. Expectations are for improving consumer sentiment. Last week’s PCE Inflation report supported the downward trend for inflation that should be supportive for consumer spending.
It was a generally positive week for the market led by the Dow Jones Transportation Average up 2% followed by a 1.8% gain in the small-cap iShares Russell 2000. The S&P 500 outpaced the Nasdaq 100 as it was up 1.1% versus a 0.6% gain. The Dow Jones Industrials were up 0.7%.
GLD was the weakest losing 0.5% while the Dow Jones Utility Average was down 0.3%. For the week on the NYSE, 2135 issues were advancing and just 797 issues declining. There was a less positive margin on the Nasdaq Composite with 2981 advancing and 1697 declining. There were more New Highs than New Lows last week for the NYSE.
As of Friday’s close, all of the weekly and daily Advance/Decline lines are positive but several of the daily A/D lines have not yet exceeded the December highs. The Spyder Trust (SPY) formed a doji on Friday with five-day support at $482.78 and a 20-day EMA at $478.05. The tentative February pivot is at $481.00.
The S&P 500 Advance/Decline line moved above the resistance at line a, last week but is still below the December high. The A/D line is above its WMA and the more important support at line b.
Since the December high and the widespread exuberance over the small-cap stocks, it has been a rough four weeks. Those who bought the move in the iShares Russell 2000 (IWM) above the resistance, line a, have likely now been stopped out. The 20-week EMA was tested last week as was the QPivot at $189.29 and I saw signs that new buying was warranted. A strong move above the $200 level would support the bullish outlook.
The Russell 2000 Advance/Decline line has moved back above its flat WMA which is a bullish setup that needs a higher close this week to confirm. A similar bullish setup is evident on the on-balance-volume (OBV) as it has moved back above its WMA with key resistance at line c.
This is a big week with the FOMC meeting, earnings from the tech giants as well as the monthly jobs report. All could easily move both the bond and stock markets either higher or lower. There are several lagging sectors that I am watching for a turn as I discussed earlier in the month. Look for an update before the jobs report.