I’m not easily impressed by what I see in the markets. I’ve been through enough to make me virtually immune to daily and weekly developments. So, it’s not often that I sit back and say, “Wow.” Last week was one of those times. Major averages moved powerfully higher; market breadth shot up as if launched from a cannon, and seasonal factors remain in favor of the bulls.
S&P 500 and NASDAQ 100
After three consecutive weeks of closing below their opening levels, the bulls said, “That’s enough of that.” Both the S&P 500 and NASDAQ 100 opened on the low of the week and closed on the high of the week. Both are now a stone throw from making new all-time highs.
We’ve noted that the trend for both has remained bullish—above the rising 60-week moving average—and that weakness was likely a pause within that broader trend. Still, last week’s action was impressive.
Source: Optuma
NYSE Advance/Decline Line
As stated above, breadth moved explosively higher. Case in point: the NYSE Advance/Decline Line. After dipping briefly below 60, the one-year stochastic has moved back above 80. Last week we noted that “sustained moves below 60 have historically coincided with deeper equity declines.” What we’ve seen recently cannot be considered sustained.
Source: Optuma
NYSE Advance/Decline Volume Line
If we think of the Advance/Decline Line as a car, we can think of the Advance/Decline Volume Line as the gas pedal. It’s great to have more stocks going up than going down, but it’s even more powerful when there’s real force behind it. That force comes from volume. When significantly more volume trades in rising stocks versus falling stocks, that’s powerful—and that’s exactly what we saw last week. The NYSE A/D Volume Line closed at a new high.
Source: Optuma
Dow Jones Transportation Average
Meanwhile, while all of the above is playing out, the Dow Jones Transportation Average is quietly working higher above a rising 27-week moving average.
Source: Optuma
Seasonality
Finally, last month’s rally preserved November’s reputation as a positive month for the S&P 500. We also note that December has a similar reputation.
Source: Optuma
Final Thoughts
The market delivered a powerful rebound last week, with major averages surging, breadth improving dramatically, and seasonal tailwinds still in play. The bullish trend remains intact, and the recent pause looks more like a reset than a reversal.
With December historically strong, the setup favors the bulls heading into year-end.
Dan Russo, CMT
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