March 17, 2025

Preview from my weekly report*

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Fear of tariffs has made stock valuations relatively cheap.  

Highlights from last week’s market action:

• $VIX volatility and the CNN Fear & Greed Index have signaled Extreme Fear, which is bullish according to The Art of Contrary Opinion. 
• The S&P 500 has suffered a sharp but fairly typical downside correction of 10%.
• Short-term downside shakeouts of 5% to 10% are to be expected in any bull market.
• Fears that Trump’s tariffs may increase inflation and depress economic activity were blamed for the 3-week decline of the stock market.
• Following the previous 15 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.
• This correction has made stock market valuations relatively cheap.
• The S&P 500 now trades for 18 times 2026 earnings estimates, which is below its five-year average of 19 times earnings.
• That is a significant change from a month ago, when the S&P 500 was trading at an expensive 23 times 2026 earnings estimates.
• Stock prices fell steeply on Monday and Tuesday on fears that new US tariffs could start a global trade war that might cause to a recession.
• Stocks partially recovered on Wednesday following the good news that the CPI rose less than expected.
• Stocks fell again on Thursday even though US economic data showed that US jobless claims declined and producer prices rose less than expected.
• Stocks bounced on Friday on expectations that Congress would approve a spending bill to avert a government shutdown.
• The latest University of Michigan’s Surveys of Consumers showed a sharp divide: deep pessimism among Democrats versus strong optimism among Republicans.
• Bond prices sagged further to the downside last week as bond yields rose.
• The S&P 500 fell again but remains systematically neutral.
• RSI and On-Balance Volume (OBV) were not as weak as the S&P 500 price, possibly suggesting developing bullish divergence.
• The equal-weight ETF of S&P 500 (RSP) broke down below its January low and remains systematically neutral.
• The Percentage of S&P 500 stocks above their own 50-day SMA has held well above its January lows, suggesting bullish divergence compared to the capitalization-weighted $SPX.
• The Percentage of S&P 500 stocks above their own 200-day SMAs now looks relatively weak, however.
• The number of Net New Highs ($NYHL), now at -29, remains technically bearish--but it finished the week above its level one week earlier.
• The Cumulative Advance-Decline Issues Line indicates bullish divergence compared to the stock price indexes.
• RSI for the small-capitalization ETF (IWM) lost downside momentum after falling below the oversold 30 mark and now may be signaling a developing bullish divergence.
• Gold broke out to the upside and remains bullish.
• Copper broke out to the upside and remains bullish. “Dr. Copper” is widely thought to be a leading indicator of global economic conditions.
• EFA turned systematically bullish on 3/14/2025 when the 50-day SMA crossed above the 200-day SMA.
• Chinese stock price index ETF (FXI) broke out to its highest price in 3 years and remains systematically bullish.
• Crude Oil ($WTIC) remains systematically bearish. Lower Crude prices may help to alleviate some inflation fears.
• US dollar ($USD) might be oversold, but that alone does not necessarily imply a significant or immediate upside Price reversal.
• Bitcoin ETF (IBIT) price has lost downside momentum and may have found support at its 200-day SMA, possibly providing early warning of a Price upturn.
• Last week, both Dow-Jones Averages confirmed lower highs and lower lows since peaking last November, so the trend-following Dow Theory is no longer clearly bullish.
• Materials Sector SPDR (XLB) turned systematically bearish again when price closed below its 50-day SMA.
• Energy Sector SPDR (XLE) turned systematically neutral when price rose above its 50-day SMA.
• Consumer Staples Sector SPDR (XLP) turned systematically bearish when price closed below its 50-day SMA.
• Utilities Sector SPDR (XLU) turned systematically bullish when price rose above its 50-day SMA.

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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See The Colby Global Markets Report (click here).

My latest book was named one of the top investment books by Stock Trader's Almanac 2005. This book also received an excellent review in the November 2003 issue of Futures.

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.

According to CFTC Rule 4.41, hypothetical or simulated performance results have certain limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been executed, the results may have under- or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity. No representation is being made that any account will or is likely to achieve profit or losses similar to those shown.

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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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