A stock market leader was diverging

Last week was another mixed week for the stock market as economic data, including the monthly weekend jobs report, kept both stocks and traders on edge.

Some of the early economic data such as ISM Manufacturing came in weaker than expected, which encouraged those hoping for a rate cut. Yields were lower for the first four days of the week, but then rose sharply on Friday.

The culprit was the monthly jobs report as estimates were for 190,000 new jobs, but instead it came in at 272,000. Stock index futures turned lower and yields rose sharply Before the report, futures traders had odds of a rate cut in September at 70%, but after, the odds quickly fell to 55%.

The Nasdaq 100, despite its lower close on Friday, rose an impressive 2.5% last week as it hit a new all-time high. It’s still the year-to-date leader as it’s up 12.93%, but the S&P 500 isn’t far behind, gaining 12.1% after posting a 1.3% gain last week. The Dow Jones Industrial Average was the only market higher last week.

On the downside, the Dow Jones Utility Average was the weakest at 2.8% followed by a 2.2% drop in the iShares Russell 2000. SPDR Gold shares rallied earlier in the week but then reversed on Friday after falling 3.6% on the day .

Invesco QQQ Trust ( QQQ ) traded at $465.74 and then closed at $462.96 after opening at $463. A doji was therefore formed on Friday as it closed 2.1% above the 20-day rising EMA at $453.30. The May 31 low was $443.05 (dashed line) and then $433.65.

While the QQQ was making a new high last week (line a), the Nasdaq 100 Advance/Decline line was forming higher levels, line b, which created a negative divergence. A break below the previous lows will confirm the divergence with stronger support of the A/D line at the c line. The relative daily performance has returned to recent highs and is above its rising EMA, indicating that the QQQ is leading the SPY.

The T&J Theme Watchlist from Friday’s close shows that 75% of the largest Nasdaq 100 stocks closed the week above their QPIvot values. There were negative 1_HR DTS signals on Friday in MSFT, AMGN, META and AVGO. However, I would be more concerned about the 3_DTS signals in the week ahead, so I will monitor this data daily during the week.

Small-cap ETFs like the iShares Russell 2000 (IWM) grabbed the market’s attention by climbing higher in early May. The rally weakened as the month progressed after the uptrend, the b line, was broken last week. The initial band is $198.05 with further support in the $195-196 area.

The downside outlook is supported by the Russell 2000 A/D line as it has been below its WMA since May 22^n.d. It fell sharply at the end of the week. RS (not shown) has fallen to a new low for the year, indicating that IWM is still weaker and not stronger than SPY.

The 10-year T-Note yield fell below the daily star band on Tuesday, Wednesday and Thursday. Deeply oversold conditions made a belated comeback on Friday, and a stronger-than-expected jobs report was the right catalyst. Yields rose from a low of 4.245% to 4.441%. The downward trend, line a, is at the level of 4.603%. Daily MACDs are negative and weekly MACDs (not shown) are close to turning negative.

This week we have the CPI report on Wednesday morning with the FOMC announcement and a press conference in the afternoon. This will be followed by the PPI report on Thursday with the monthly Consumer Sentiment reading on Friday. The best opportunities occur when A/D lines rise, which is not the case now, especially with the Nasdaq 100 A/D line diverging.