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Market Summary

The stock market had its biggest gain in two months after the U.S. government reported an encouraging pickup in hiring. The surge was enough to push two of the three major U.S indexes to gains for the week. Both the Dow and S&P 500 ended fractionally higher for the week, while the Nasdaq ended down less than 0.1 percent. It's been almost four years since the S&P 500 has had a 10% correction. That makes it the second longest such streak since World War II, trailing only the period from 1990 to 1997 that went longer without experiencing a double digit loss.

For the week, the S&P was up marginally at .4 percent, the Nasdaq is down incrementally at .04 percent and the Dow rose .9 percent. The Dow is 0.53 percent short of its all-time high close set in early March and the S&P 500 is 0.08 percent below its record high close set in April. The Nasdaq is 1.74 percent lower than its record close on April 24. About 6.6 billion shares changed hands on U.S. exchanges, below the 6.8 billion daily average for the last five sessions, according to BATS Global Markets.

YTD Performance

A tool to help confirm the overall market trend is the Bullish Percent Index (BPI). The Bullish Index is a popular market "breadth" indicator used to gauge the internal strength/weakness of the market. It is the number of stocks in an index (or sector) that have point & figure buy signals relative to the total number of stocks that comprise the index (or sector). So essentially it is the percentage of stocks that have buy signals. Like many of the market internal indicators, it is used both to confirm a move in the market and as a non-confirmation and therefore divergence indication. If the market is strong and moving up, the BPI should also be moving higher as more and more stocks are purchased.

Last week's observation "...If the current support level doesn't hold, the index could easily to fall to the low established at the end of January..." The updated Nasdaq Composite Bullish Percent Index below shows the formation of a support level. The next few days will confirm whether this support will hold.

NASDAQ Bullish Percent Index Daily Chart

Last week's analysis stated "...The NYSE Bullish Percent Index chart below shows the BPNYA broke below the support of its trading range. The 50-day MA line should hold as new support, if it doesn't that probably signals a longer-term downtrend..." The updated chart below shows the 50-day MA did not hold up as support. Over the next few days we will see if Friday's price action was something more than just a "dead cat bounce".

NYSE Bullish Percent Index Daily Chart

Last week we mentioned "...The dollar continues to lose ground against foreign currencies posting its worst month in four years in April...gold remains subdued in the current noninflationary environment...Treasuries posted their worst week in two months as traders readjusted to higher yields globally..." Gold bottomed out as lower bond yields revived some appeal of holding the precious metal.

US Dollar Index Daily Chart

Market Outlook

U.S. stocks moved higher as a rebound in April job growth appears to be easing economic growth concerns, while likely keeping premature Fed rate-hike worries in check. But, disappointing wage numbers still cast doubt on how solid the economy's footing is. As a result, some market pundits believe the Federal Reserve could hold off longer than previously expected before raising interest rates. "These numbers are starting to lead investors to the same conclusion that the Fed will not lift rates through 2015," said Tom di Galoma at ED&F Man Capital.

Oil prices posting their first weekly loss in a month did not prevent energy stocks from continuing to outperform the other major asset classes after gaining 20 percent in April. Oil posted its best monthly gain in six years. The weaker dollar helped U.S. crude oil prices hit fresh 2015 highs by making oil less expensive for holders of other currencies.

April-May Performance

A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend.

You can see in the updated chart below how last week's comment is still valid "...Observe in the updated chart below how the recent downtrend bounced off the bottom of the current trading range. As noted, momentum remains stuck in neutral, which supports stocks continuing to bounce up and down in a trading range..."

MTUM Daily Chart

Our current VIX analysis is a mirror image of last week "...you can see the VIX jumped midweek as stocks pulled back, but by the end of the week...sunk to the lowest level since the end of last year. The obvious question is whether the S&P 500 index will finally break out past the high established in early march..."

VIX Daily Chart

The Put/Call ratio indicates traders are moderately bullish about the near term market direction.

Total Put/Call ratio

The American Association of Individual Investors (AAII) Sentiment Survey measures the percentage of individual investors who are bullish, bearish, and neutral on the stock market for the next six months; individuals are polled from the ranks of the AAII membership on a weekly basis. The current survey result is for the week ending 5/6/2015. The AAII neutral reading remains stuck near historically high levels, this supports the current range-bound trend. The contrarian interpretation is when prices break out it will be to the downside.

AAII Sentiment

Weekly Sentiment

The Nation Association of Active Investment Managers (NAAIM) Exposure Index represents the average exposure to US Equity markets reported by NAAIM members. The blue line depicts a two-week moving average of the NAAIM managers' responses. NAAIM member firms who are active money managers are asked each week to provide a number which represents their overall equity exposure at the market close on a specific day of the week, currently Wednesdays. Responses can vary widely as indicated below. Responses are tallied and averaged to provide the average long (or short) position or all NAAIM managers, as a group. As the name indicates, the NAAIM Exposure Index provides insight into the actual adjustments active risk managers have made to client accounts over the past two weeks. First-quarter NAAIM exposure index averaged 83.02%. Last week the NAAIM exposure index was 90.60%, and the current week's exposure is 80.23%. Money managers have been cashing in some gains as they got a little nervous during the recent price pullback.

NAAIM Number

NAAIM Number Mean/Average

Trading Strategy

All 10 sectors in the S&P 500 index rose, led by health care companies. It was the biggest gain for the index since March 16. Next week, labor expenses will be a key focus as big retailers, including Macy's, Nordstrom Inc. and Kohl's Corp. post quarterly results. Last week we said "...The caveat is interest rates, if the Federal Reserve decides to hike rates any time soon; a summer swoon becomes a higher probability. We suggest changing your investment posture from aggressive to more defensive and hedging your bets, especially with the market standing on shaky ground and ready to breakdown. Be especially careful in May, which has been down in three of the last five years (sizeable losses in 2010 & 2012)..." Friday's job report indicated employment growth is still tepid and virtually no wage inflation. Investors interpret the weak employment picture will encourage the Fed to put off a rate increase any time soon, which is primarily why the market immediately responded with a huge day on Friday.

S&P 30-Day Sector Performance

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