As April comes to a close, the stock market outlook is not very promising for May. Despite attempts to rally from recent lows, the Spyder Trust (SPY) and Invesco QQQ Trust (QQQ) have struggled and technical indicators do not confirm a bottom. The market sentiment towards stocks has declined, leading to concerns of a potential retest of recent lows.
Trading on the NYSE and Nasdaq on Tuesday showed a negative ratio of advancing to declining issues, indicating potential further downward movement. Both SPY and QQQ formed dojis on Monday, closing at the same level they opened. As they continued to trade below the doji lows, new sell signals were likely to emerge, potentially leading to a test of previous lows triggered by weak GDP data.
Sector ETF performance has been lackluster, with only the Utility Sector (XLU) and Energy Select (XLE) showing minimal gains. Most ETFs are trading above their yearly pivots, a trend that generally suggests market support during pullbacks in an uptrend. However, the Real Estate Sector Fund (XLRE) is currently below its yearly pivot. Despite some sectors showing strength earlier in the year, performance in April has been weak, with XLRE being the worst performer.
Potential leading sectors for the coming months based on relative performance (RS) analysis include the Technology Select (XLK), Communication Services (XLC), Industrial Sector (XLI), and Energy Select (XLE). XLK, in particular, has corrected but remains a market leader with strong OBV and RS indicators. XLC and XLI also show positive RS and volume patterns, while XLE has broken resistance levels and shows signs of bullish momentum.
With many sector ETFs likely to open below their new monthly pivots in May, short-term momentum appears negative. Observing daily technical studies and pivot analysis will be key in determining when ETFs may resume their longer-term trends. As market commentary turns towards selling in May and stepping away, monitoring these indicators will be crucial in navigating the market in the coming month.
