As the stock market finished the first full week in May, the trade tariff chaos has subsided at least for now, with news of progress with the United Kingdom. Recessionary fears have also subsided for now, but the data over the next six weeks is likely to reveal what damage, if any, has already been done to the US economy.
The double-digit market rally from the April 24th closing lows is already making some analysts nervous. It has likely been quite painful for the market bears who have failed to recognize or accept the recent bullish market developments. The high level of bearish sentiment or low bullish sentiment has reinforced the market’s decline since the start of the year, as the stock market rallies have generally been sold.
After two strong weeks of gains, most of the averages were lower for the week, as the SPDR Gold Shares (GLD) was the best by far, as it was up 3.0% for the week. The iShares Russell 2000 (IWM) was the only other gainer as it rose 0.2%.
The S&P 500 was down 0.50% as it closed above the lows, like the NYSE Composite, Nasdaq 100, and Dow Jones Industrial The Dow Jones Utility Average was down 0.8% but on a year-to-date basis is up 5%. That is well behind the 26.7% YYTD gain for GLD.
The Spyder Trust (SPY), after an all-time February high at $611.39, had a low of $481.80 in early April. From the high to low, that was a decline of 21.2%, but on a closing level, it was not down more than 20%. The close this week was just above the flat 20-week EMA at $364.22, and the 61.8% Fibonacci retracement resistance based on the highs and lows at $563.22 has been overcome this level based on the closing levels at 5700 has not yet been overcome.
The S&P 500 Advance/Decline Line had made its high in November 2024, and in February, a lower high, line b, was formed. The bearish or negative divergence has been closely monitored, as in my A/D line analysis, a drop below support at line c would have forecasted a sharper decline.
Instead, on May 2nd, the weekly S&P 500 A/D line moved above the resistance at line b, and made a new closing high. Below the A/D line, I have added the AAIIbull-AAIIbear indicator. This indicator has been declining since last September and has formed a well-established downtrend, line d.
These values are released weekly, and historically, a difference of -30 or lower is a sign that investors are too bearish. This reflects a survey reading where there are 30% more bearish than bullish investors. This is a contrary indicator as these levels are often seen at important market bottoms. In March, it reached -40, and as noted at the time, it had reached -51.4 just after the bear market low in March 2009.
Last Thursday, the AAIIbull-AAIIbear rose to -22, which may complete a bottom, and if so, it is another piece of bullish evidence for the stock market.
I have been using and teaching my version of A/D line analysis since the 1980s. There have been many times that it has forecast new highs for the market averages well in advance. Often, these signals coincided with periods when bullish sentiment had reached very low levels. Some of you may remember the sharp decline in the last quarter of 2018.
From the close on September 28, 2018, to the close on December 28th, the SPY declined 13.5%. The close at $226.72 was well above the December 26th low of $212.06. By January 7th, SPY had rallied to close above its 20-day EMA at $225.71. The AAIIbull-AAIIbear had risen from -27 to -10 as the sentiment had shifted. The bullish % was still below its long-term average.
On January 30, SPY closed at $242.74, and the S&P 500 A/D closed above the all-time high from September 2018. This high was tested, but not exceeded, in early December before another sharp wave of selling. The A/D line forecasted a move above the September high of $264.45, line a. This high was exceeded on April 17th, as SPY reached $268.75 on May 1st.
As was the case this year’s the decline in the SPY was more severe than that of the S&P 500 A/D line. The decline lasted until early June, and from the high to the low, SPY corrected 7.5%. Three days after the low, the A/D line moved above its downtrend, line e, which indicated that the decline was over. The sentiment dropped sharply (see arrow) as the market declined, which created the condition necessary for the rally to resume.
By the middle of February, the NYSE Stocks Only A/D line, the NYSE All A/D line, and the Nasdaq 100 also had made new highs. The QQQ closed at $165.79 and therefore projected a new high, and it reached $183.80 in late April. The NYSE Composite made a new all-time high in December of 2019.
As the bear market was ending in the first quarter of 2009, there was clear technical evidence that the Invesco QQQ Trust (QQQ) was leading the S&P 500 (see chart). Ever since those lows, the focus has often been on whether the high-cap tech stocks in the QQQ would continue to outperform the SPY. Today’s markets table (above) reveals that currently QQQ is down 4.5% YTD and is weaker than SPY, which is down 3.8%.
The April low in QQQ at $402.39 held just above the November 2022 high of $399.45, line a. This level was overcome in December of 2023 and then became an important level of support. The Nasdaq 100 Advance/Decline line overcame the 2021 high, line b, in the middle of November 2022 (line 1) as it led the new price high by five weeks. The pullback in the sentiment, line e, provided fuel for the breakout.
The A/D line has been confirming each new price high for the QQQ since the breakout and made a new high in February 2025, line c, before the market corrected. From the high at $540.00 to the April low of $402.39, QQQ had corrected 25.5%.
The A/D line held above its EMA in April, and the new high in the weekly A/D line on May 2nd, along with the close back above the yearly pivot at $482.57, now projects a move above $540. This is 9.6% above Friday’s close, and there is support now at the yearly pivot. The yearly R1 resistance is at $572.72. It would take a drop in the A/D line below the April low to weaken this positive outlook.
With China trade negotiations this weekend and a high degree of skepticism over the recent rally, a pullback would not be surprising. QQQ closed 3% above its 20-day EMA while SPY was 2.1% higher and both have some room to correct. I will continue to use the yearly pivot analysis to select ETFs for new long positions. I will be updating this table over the weekend as part of my regular weekend screening process.
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