Is the Trump Rally Finally Over?

I think most analysts would agree that President Trump is making big decisions rapidly and no one knows what’s next or how any constituency or nation will respond. This makes the future uncertain, and while many are nervous, technical analysis shows that Trump has been good for stocks.

Those who don’t like President Trump may not like this conclusion.  However, over the last twelve months as Trump’s campaign gathered steam, the stock market has had a very good rally.  Most interestingly, the rally in the Nasdaq 100 Index after the election has gathered steam. Ironically, this index is heavily weighted toward Silicon Valley stocks such as Alphabet (GOOGL), Facebook (FB) and Apple (AAPL), and the CEOs of those companies have expressed concerns about Trump’s policies. 

It’s foolish to think that any market can rise forever and this one is no exception.  Trump’s rapid fire executive orders and reaction to them may increase the market’s volatility and perhaps even trigger a sizeable decline, and soon.  But as of January 27, that’s not what the charts are telling us.

S&P 500 Holds Steady

If the market was the S&P 500 (SPX) we might say that the index is consolidating after its recent new high and that there is another significant move that lies ahead, possibly upward. This is the indication provided by the narrowing of the Bollinger Bands (dark blue lines around price candlesticks) that have just started to expand in textbook fashion after the index was range bound for 14 days before delivering a new high on Jan. 25.  Narrowing Bollinger bands are a sign of low volatility, a technical condition which precedes higher volatility.












There are more positives here, though. For one, volume on up days (green volume bars) is generally higher than volume on down days (rose bars).  And the index is still above its 20-, 50-, and 200-day moving averages, signaling that the dominant trend is up in the short, intermediate, and long term. The on balance volume (OBV) and money flow index (NFI) indicators are still neutral, which suggests that the rally is still not overheated and may go higher. To be clear, in the current market moderate volume is a sign that investors are still concerned. Concern is usually a good thing in the market as it’s a sign of worry.  Bull markets climb walls of worry.  Trump is a big wall of worry.

Money Magnets

The big technology stocks are even more impressive.  While money flows into the S&P 500 are steady, larger flows have been heading into the Nasdaq 100 (NDX) index, where large cap growth stocks, especially technology names, live.  Compare the decisive new highs in NDX to the more moderate move in the S&P 500.  Look at the money flow and on balance volume indicators.  Note that prices are showing signs of accelerating to the up side.












Market Breadth Remains Strong

Regular readers are familiar with the NYSE Advance Decline line (NYAD), the line resulting from the daily difference between advancing and declining stocks on the exchange. Generally speaking this line is deemed to be a positive indicator when it is rising and when it makes a new high along with a major index.   So far, this has been the story after the election.













A 12-month historical view shows the excellent correlation between the AD line and the general trend of the market as measured by the S & P 500 (first lower panel), the Nasdaq 100 Index (middle lower panel) and the S & P 500 Small Cap Index (SML, lower panel).   The percentage numbers in the lower panels are the 12 month returns for each index over the last twelve months.  This chart has three main messages:

1) The market has trended significantly higher over the last twelve months and has picked up steam after the election.

2) The Nasdaq 100 index is currently the strongest of the three indexes and seems to be gathering steam to the up side.

3) Small cap stocks led the way higher for the past twelve months but may be entering a consolidation period.

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