Based upon the S&P 500 Index making a new closing high on Friday equities appear constructive, with some sectors doing well while others lag. So buy the dip or sell the bounce? It all depends on the sector. The Market Review explains along with comments about last week's Powell and Yellen remote "Dog and Pony Show".

S&P 500 Index (SPX) 3974.54 advanced 61.44 points or + 1.57% last week after churning up and down until Friday when it bounced up off the 50-day Moving Average to make a new closing high just .42 points above the previous closing high made on March 17. On Thursday, it traded below the 50-day Moving Average but then closed back above it rebounding in a late-day rally. Support at the 50-day Moving Average held once again as the perennial bulls knew it would.

Invesco QQQ Trust (QQQ) 316.00 added 3.25 points of +1.04% last week but it still closed below the almost flat 50-day Moving Average at 320.61 that halted the attempt to overcome resistance on Monday and Tuesday for the third time. For March with three trading days to go, Technology, Communication Services, and Consumer Discretionary sectors, with many richly valued high-growth stocks, some without earnings, are on the bottom. It appears QQQ and some constituents are being sold as they bounce up with money rotating into cyclicals such as Industrials and Materials along with Utilities considered as a bond alternative with yield and some inflation protection, that's now becoming increasingly important.

CBOE Volatility Index® (VIX) 18.86 dropped 2.09 points or -9.98% last week. Our similar IVolatility Implied Volatility Index Mean, IVXM using four at-the-money options for each expiration period along with our proprietary technique that includes the delta and vega of each option, slid 1.86 points or -11.63% ending the week at 14.13%, and a bullish 52- week low, or a caution sign from a return to the mean perspective around 17%, as shown in the following six-month chart.

VIX Futures Premium 

On Friday, this coincident indicator finished at 17.02%, further into the bullish green zone between 10% and 20%, vs.14.28% for the week ending March 19.

Since most of the volume and open interest are in the two closest futures contracts measuring the volume-weighted premium relative to the standard 30-day VIX provides a good real-time sentiment indicator based upon actual commitments of large Asset Managers and Leveraged Funds. 

Market Breadth as measured by our preferred gauge, the NYSE ratio adjusted Summation Index that considers the number of issues traded, and reported by McClellan Financial Publications, declined every day last week, but by Friday the rate of decline slowed, ending at 512.93, for a loss of 156.61 points or -23.40%. Perhaps reflecting rotation activity, it's one reason to stay cautious.

Strategy 

In bull markets, a good strategy is to stay long equities and/or ETFs and then tactically hedge pullbacks as they begin developing since ordinary pullbacks can become corrections when something unexpected happens. Then corrections can become downturns when something else unexpected happens, and downturns can become bear markets when many unexpected things change medium and long-term fundamentals.

Federal Reserve Chairman Powell and Treasury Secretary Yellen, called the Bobbsey twins, * since they have the same opinions, spearheaded a media blitz along with other Federal Reserve officials to assure the markets that ultra-supportive monetary and fiscal policy, that former Treasury Secretary Larry Summers called the "least responsible" macroeconomic policy in the last 40 years, will continue. Powell even turned to the non-financial National Public Radio’s “Morning Edition” program on Thursday, to say any change in monetary policy would happen "very very gradually over time and with great transparency when the economy has all but fully recovered." It all seemed like an orchestrated jawboning effort to keep long interest rates from rising. However, the bond market may take matters into their own hands as inflation increases.

* From the characters in a long-running American series of children's books (1904–1992), written under the pen name Laura Lee Hope. We called them the Bobbsey twins because they always had the same opinions.ProShares UltraPro Short QQQ (SQQQ) 13.53 down 48 points or -3.43 % last week. At 3X short QQQ, it slid under the 50-day Moving Average at 13.60. Until it closes below 13, the trigger point to close this position, according to the original trade plan in Digest Issue 10 "Bumpy Ride [Charts]," it seems prudent to keep this hedge position open until QQQ closes back above resistance at its 50 -day Moving Average.

Summary

Federal Reserve Chairman Powell and Treasury Secretary testified at House of Representative and Senate hearings on Tuesday and Wednesday. The S&P 500 Index declined slightly both days but recovered Thursday after challenging the 50-day Moving Average and then spiked higher Friday. Powell and Yellen's PR offensive seemed over the top as if they needed to convince a skeptical audience. With the exception of market breadth, the indicators ended the week bullish.