May 12, 2025

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Stocks finished mixed, but technical indicators show bullish divergence.  

Highlights from last week’s market action and news:

• Stock prices finished narrowly mixed last week, but technical indicators show bullish divergence.
• The S&P 500 stock price index ($SPX) eased lower by 0.47%, while the Equal-Weight ETF of S&P 500 (RSP) rose 0.40%, the small-cap Russell 2000 stock ETF (IWM) rose 0.16%, and the Nasdaq 100 ETF (QQQ) declined 0.18%.
• On-Balance Volume (OBV) for the S&P 500 rose strongly to a new high and shows a bullish divergence compared to the S&P 500 stock price index.
• RSI and MACD for the S&P 500 also are above their highs of 3/25/25 for a bullish divergence compared to the S&P 500 price.
• The Cumulative Advance-Decline Issues Line rose to an all-time new high, for a bullish divergence compared to the price indexes, which remain below their November to March highs.
• The Percentage of S&P 500 stocks above their own 50-day SMAs rose to a 62.2% majority and now shows bullish divergence compared price.
• The number of Net New Highs ($NYHL), now at +26, is technically bullish.
• The NASDAQ 100 ETF (QQQ) may have encountered some resistance near the 200-day SMA—but RSI, MACD, and On-Balance Volume (OBV) show bullish divergence.
• Sentiment indicators (which generally follow the price trend) have recovered to near-normal levels, after showing Fear or Extreme Fear for several months, which was bullish according to The Art of Contrary Opinion.
• iShares Core US Aggregate Bond ETF (AGG) remains systematically bearish—but On-Balance Volume (OBV) has been and remains stronger than price, suggesting a bullish divergence.
• Gold price lost some of its bullish momentum following its previous price rise but remains systematically bullish.
• Copper price sagged lower and remains systematically neutral.
• For the EFA, RSI and OBV are not making higher highs and are not as strong as price, thereby showing negative divergences.
• Emerging stock markets ETF (EEM) price appears to have encountered resistance near previous highs above 45.
• Chinese stock price index ETF (FXI) appears to have encountered resistance around its 50-day SMA and is systematically neutral.
• Crude Oil ($WTIC) Price showed a modest oversold bounce but remains systematically bearish.
• Bitcoin ETF (IBIT) Price, RSI, MACD, and OBV indicate renewed upside momentum over recent weeks.

The case for bull market stock price gains

• Long-term, the history of the stock market favors the bulls. Stocks spend more time going up than down, and up market gains are much larger than down market losses.
• Extreme fear of rising tariffs and trade wars are likely overblown.
• The Trump administration is negotiating fair and competitive terms for global trade.
• Trade deals will be made, because that is in everyone’s best interest.
• Trump said there has been “big progress” in talks to strike a trade deal with Japan, and he is very confident about reaching trade deals with the EU and China.
• A more competitive trade position may increase demand for US products, stimulate investment in US production capacity, increase US GDP, increase US tax revenue, and reduce the budget deficit.
• The stock market’s downside price correction since peak on 2/19/2025 has cut valuations to reasonable levels from overvalued, overpriced levels.
• Following the previous 15 downside corrections going back to 2008, the S&P 500 rose more than 15%, on average, over the next 12 months, according to Dow Jones Market Data.
• The downside correction from the peak of the S&P 500 on 2/19/2025 to the bottom on 4/7/2025 looks like an Elliot Wave ABC three-wave reaction (down, up, down) against the larger degree bull market trend.
• “Barron’s latest Big Money poll of professional investors finds 32% of respondents bearish on the outlook for stocks over the next 12 months—the highest percentage since at least 1997.” Source: barrons.com.
• Hedge funds are the most bearish in the 5 years since 2020, according to Goldman Sachs. These funds are “weak hands” traders who will quickly buy to cover shorts and buy long as soon as they suspect that the price trend has turned to up from down.
• According to the latest survey from Bank of America, investors cut their US stock holdings by 40 percentage points from the previous survey, the most on record, from 17% overweight in February to 23% underweight in March, while cash levels have risen to 4.1% from 3.5%, the biggest jump since 2020. Underinvestment and rising cash are fuel for a bull market.
• CPI inflation has come way down, to below 3% from a peak rate of 9% for June, 2022.
• The Federal Reserve Board has been slow to lower short-term interest rates. Market rates have been moving irregularly lower since October 2023.
• Consumer spending and the economy have remained remarkably resilient.
• The Conference Board’s Leading Economic Index® (LEI) for the US does not suggest that a recession has begun or is about to start, although the Conference Board revised its US GDP growth forecast down to 1.6%, which is somewhat below the economy’s potential.
• Corporations are buying back their own stocks.
• The Trump administration is expected to promote business-friendly, pro-growth economic policies, with lower corporate taxes, looser regulations, and reduced red tape.
• A growing economy, resilient consumer spending, and a strong jobs market would support rising corporate profits.
• Elon Musk’s DOGE is trying to reign in out-of-control government deficit spending, which could cut budget deficits and help limit interest expense on government debt and help limit inflation.
• Geopolitics has threatened to be the biggest tail risk to markets for many months, but Trump appears determined to make new deals for peace and prosperity.
• Ending wars in Ukraine and the Middle East could save tens of thousands of lives and save US taxpayers many billions of dollars.
• Artificial intelligence could usher in a new era of productivity and profits.

11-Year Outperformance by the
Top 10 Exchange Traded Funds
Weekly Rankings of Major Trend Relative Strength
My weekly Top 10 ETFs ranked by the Major Trend Relative Strength outperformed the S&P 500 by over an 11-year period of real-time weekly tests. Click here for a graph of simulated performance.
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My ETF Rankings are not investment advice. Rather, they are an objective ongoing research study.

Analysis of market forces may offer a sense of probabilities. But the many variables that can impact market prices are notoriously difficult to predict. And, market analysis is something less than an exact science. So, sound trading tactics are always recommended. See my Money Management Rules.

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Robert W. Colby, CMT,
is a consultant to institutional and private investors and traders, providing regular analytical reports, custom research services, and trading systems tailored to clients' objectives. Clients include the most successful traders and investors in the world. Robert is the author of The Encyclopedia of Technical Market Indicators, Second Edition, McGraw-Hill, 2003, which has become the standard reference for indicator and trading systems design. Previously, at several large Wall Street firms, Robert worked as a proprietary trader, technical analyst, and fundamental analyst. He also was adjunct professor at New York University and New York Institute of Finance, where he developed new courses on technical analysis and market timing.

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