With Economic Data Mixed, Why Are Stocks So Strong?

Last weekend's investor worries set the stage for a weak open, and so S&P futures were lower ahead of the open on Tuesday. The S&P 500, as well as the other major averages, opened weak, as well. The 10 AM release of the ISM Manufacturing Index added to the selling pressure, as the ISM Manufacturing Index dropped below 50 for the first time since January 2016. This added to the recessionary fears spurred by the inverted yield curve.


The market’s weak reaction is clearly evident on the hourly chart above from TalkMarkets contributor Jill Mislinski of Advisor’s Perspective (see full article here). The daily market internals Tuesday were negative enough to keep the pressure on the market throughout the day.

However, my analysis had shown a very bullish weekly outlook that favored higher prices in September than most were expecting. Past experience with similar formations has allowed me to be confident in buying the market dips. Instead of continuing lower Wednesday, the S&P gapped higher Wednesday and added to the gains on Thursday alongside positive trade news.



For the week, the Nasdaq 100 again led the averages, gaining 2.10%, followed by a 1.79% gain in the S&P 500. The Nasdaq 100 is up 24.0% YTD, while the S&P is now just 1.56% below its record close. The Russell 2000 Small Cap Index continues to lag the other averages. The Dow Utility Average closed below the highs, but still gained 0.33% for the week.

Overall, the week's market internals were strong, with 2158 stocks advancing and just 880 stocks declining. In last week’s post, I pointed out the bullish weekly action in the NYSE All A/D Line and NYSE Stocks Only A/D Line (see chart). Both A/D lines have therefore risen even further.

In order to correctly analyze the advance/decline data, one must look at a number of different time frames. The monthly A/D analysis turned positive in the spring of 2016 and stayed positive during the 2018 corrections, which was bullish for the market’s major trend.

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