Warning Signs Keep Growing — But Tom Isn’t Bearish!

Hinzugefügt: 2026-06-01

[00:00:02][music] Hello and welcome to this weekly market recap for the week ending Thursday, May 28th, 2026. I'm Tom Bolley, chief market strategist at earningsbeats.com. It's a pleasure to be with all of you again this week. Uh I tell you, the market just doesn't seem to want to quit. We keep moving up. Uh keep setting some new highs. We got another inflation report out this week. The core PCE index came in a little better than expected, rising just 2/10 of 1% instead of 3/10en of 1%.

[00:00:40]And we saw the 10-year Treasury yield fall back. We saw some of my sustainability ratios, those growth versus uh value type ratios or offense versus defense depending on how you look at it. Uh all of those really uh starting to strengthen again. So, I think overall the market continues to do really well. Um, I'm not seeing anything that suggests that we've got some kind of an imminent uh pullback. Certainly not a significant one. Um, you know, waiting in the wings out there for us.

[00:01:11]So, it's just go along. You know, you don't want to fight this secular bull market. That's the way I look at it. Uh, taking a look at the action over the course of the last week, and this is going from Thursday's close to last Thursday's close, just so you're clear.

[00:01:26]Transportation stocks gaining 3.6%, Russell 2000 up 3.4%.

[00:01:32]The NASDAQ 100 up just under 3%, the S&P 400 midcap index up 2.1%.

[00:01:40]S&P 500 gaining more than 1.5%. and the Dow Jones, the lagard, but the Dow's still tacking on about 3/4 of 1%. Uh, all of the major indices with the exception maybe uh transportation uh all setting new highs. So, we continue to see those all-time record highs coming in. I think that bodess really well for the market. I don't like to fight all-time record highs um unless it's really warranted. I mean, you have to see a ton of uh signals, warning signs popping up, and I just don't see that many.

[00:02:18]So, I think you got to stick with what's working, which is on the long side. Uh, yes, we're overbought. Yes, we could pull back at any time. There are a couple of things that make me a little nervous about the market. I'll talk about those in a in a minute, but there are just as many, if not a lot more that uh have me pretty excited about where the market uh could be heading, not just this year, but really in the next few years.

[00:02:44]Moving on to the sectors, technology and consumer discretionary leading over the last week. That is normally a really good thing. Uh I know a week ago or even maybe a little bit more than that uh one of the warning signs that I was getting is that the consumer discretionary group was not performing well relative to consumer staples. And that's one of my favorite go-tos in terms of a sustainability ratio to try to determine whether or not the S&P 500 has legs or not. Uh I told members because I was getting a lot of questions from earnings beats members about this ratio dropping a little bit recently and I said well with all the other ratios going up I think it's just a matter of time before consumer discretionary starts to perform better and that ratio goes up as well.

[00:03:32]Well you can see consumer discretionary over the last week gaining almost 3%.

[00:03:36]Consumer staples on the other hand dropping a quarter of 1%. So you can see that flip in terms of the relative performance there. I think that is bullish. So it's hard to argue with technology and consumer discretionary leading the action. Another aggressive group, industrials, uh beating the S&P 500 over the last week as well. So that's three pretty significant areas at the top of the leaderboard. That is normally a pretty good sign that this is a healthy advance. Uh down toward the bottom we have seen crude oil prices uh falling again and as a result energy significantly underperforming energy down about 3.7% last week otherwise there were a few groups down all value related real estate consumer staples utilities and financials. Uh all of those are dividend paying type uh areas of the market and all of those were down fractionally for the week. So money is rotating into growth uh and offense and rotating away from value andor defense.

[00:04:43]S&P 500. So when I look at the market at what's working and things that get me excited that tell me to stay the course, this is one of those charts. Got the S&P 500 moving up. Look at the QQQ relative to the S&P 500. QQQ. They're both, you know, they both have plenty of growth stocks in them, but the NASDAQ 100 is like an ultrathrowth uh index, whereas the S&P 500's got a lot more value names in there. Um, just financials, for instance, the NASDAQ 100 has very little financial representation. Financials, one of the bigger sectors within the S&P 500. So, anytime the QQQ is rallying like this versus the S&P 500, that is a sign of a riskon environment and that is what drives bull markets higher. So, we've got that going. Now, here was the XLY XLP ratio. So, it's rolling over. It wasn't looking very good. And I said, be patient. I'll be more nervous if we break down or if all of these other ratios start turning down. But that did not happen. the other ratios have been going mostly higher. And here over the past week or so, you can see a really big jump in the XLY versus the XLP as it moves back up near a multi-month high.

[00:06:02]Uh large cap Russell 1000 growth index versus the large cap uh Russell 1000 value index. You can see right here that has been rallying for the last couple of months off of that March low where we saw the S&P 500 bottom. That's a good sign. Here is the Dow Jones US Large Cap Growth Index versus the Dow Jones US Large Cap Value Index. This one's actually going back down a little bit.

[00:06:28]We hooked up a little bit today. We'll see whether or not we can strengthen.

[00:06:32]Usually, these two tend to move pretty similarly. So, I'm a little surprised that we've got the IWF IWD moving higher while the other growth value index moves lower. But I think over time we'll see them both pick back up uh to the upside.

[00:06:48]One new development is we we're seeing midcap growth uh moving to about a fourmonth high versus midcap value. This is one area of the market that had really struggled. I think the fact that grow um that software stocks have been performing better. A number of those mid uh midcap software companies are starting to get their legs under them. I think that has helped this index or this ratio move back to the upside. Small cap growth versus small cap value really just been soaring off that March low.

[00:07:19]Transports versus utilities had a big spike in April, pulled back, now spiking again. Uh definitely seems to be in an uptrend. And copper, which is an industrial metal versus gold, which tends to do better when volatility is high and when fear, you know, when the market's not doing well. Um, copper versus gold also been going up pretty steadily over the last couple months, which I think is another uh, positive in the market. So, all of my sustainability ratios continuing to support the market.

[00:07:50]Another positive for me in the market is that the volatility index finally closed below 16. Um, those of you who follow me know that I like to follow sentiment indicators, one of them being the volatility index. When the volatility index drops back down below 1617, that range, that usually is confirmation of a bullish or mature rally um likely continuing. And that's exactly what we saw here on Thursday with the volatility index dropping 3.4%. It was up early this morning, uh but then it fell and closed back below 16. That was the first close below 16 since back in January prior to the correction. So, I like what's going on here with the volatility index.

[00:08:39]If there are a couple of things that bother me about the market, you know, something that keeps me up at night maybe in the short term, and I do think it's just a short-term issue, negative divergences have emerged. So, as we've been going up, you can see the PO on the S&P 500's been going up. We pulled back um about a week and a half ago. I think personally I think it was because of options expiring. After that pullback, we've come back up, moved to new highs again, but this time the PO has not yet gone up with price action. Now, these negative divergences can be eliminated.

[00:09:17]If we continue moving up, we could see that PO turn back up and eventually just move to a higher high. But right now, we do have a lower high. So, be careful if we were to get like some sort of reversing candlestick, a big bearish engulfing candle. Maybe if there's good news, maybe there's something that comes out about the war here fairly soon where it, you know, basically it's over. Um, we get a big gap up in the morning and then all of a sudden we sell off all day long. Something like that. Some kind of an event where we get good news, we gap up and then we sell off all day long.

[00:09:53]That would be the kind of the kind of reversal that could stick with us for a while. In other words, establish a really key resistance level that we might have to deal with for a period of time, more than just a couple of days, maybe a few weeks, maybe even a couple months, maybe over the summer. But, uh, at least for right now though, this market just continues to go up. I hate fighting price action, but there is that negative divergence. XLK, the largest sector within the S&P 500, also breaking out with a negative divergence. And within technology, the biggest area and the area that's really carried the stock market um has been the semiconductor index. This is the EyesShare Semiconductor. And look at the EyesShare Semiconductor. Higher prices, lower PO.

[00:10:41]Now, on all of these charts, the weekly PPOs are fine, the monthly PPOs are fine. It's just the daily. So, if we do have problems because of slowing momentum, I believe it's just going to be temporary.

[00:10:54]One other thing that I've talked about recently quite a bit has been breadth and the fact that I don't really I'm not a fan. I did a video over at our earnings beats channel last weekend. I talked about it. I also talked about it in our live uh trading room with members on Wednesday morning. I want to make sure that all of you see this as well because there's a reason why I don't follow breadth. I think that it gives unreliable signals. I think sometimes it works. Most of the times it doesn't. And I think all it does is give you one more reason to bet against a secular bull market that doesn't seem to want to stop. So, let me just pull up and show you this spreadsheet that I did. Now, I want you to concentrate really on these columns right here. So, down the left side, I have all of the sectors, uh, all 11 sectors. These first two columns right here are the number of companies within each sector that are also within the S&P 500. So for instance, technology out of the 500 companies in the S&P 500, technology uh has 75 of those companies or a 15% representation among just the number of companies. So technology has 15% of the companies in the S&P 500. Industrials and financials actually have more companies.

[00:12:23]Industrials with 82, financials with 76.

[00:12:27]So that's 16.4% of the S&P 500 is in industrial companies, 15.2% is financials, and then 15% in technology. Now, if we shift over to the market cap, and this is what drives the S&P, it's not the number of companies that go up or down. It's the market cap. If the high market cap companies are going up, that's what takes the S&P 500 higher because it's a market cap weighted index.

[00:12:59]Technology, even though there are only 15% of companies within those 500 companies, 37% of the market cap is in technology.

[00:13:12]So 15% of the companies are driving 37% of the index. If you look at discretionary 9.6 of the companies driving 10.2% of the index communication services only 3.8% of the companies only 19 companies but they are driving 11.2% of the market cap. My point is the market cap of the three aggressive groups is 58% over 58% of the S&P 500 but it's only 28% of the companies. So when you start looking at breath indicators that look at advanced decline or look at number of companies over the uh 50-day moving average or over the 20-day moving average. understand that the three biggest groups that make up almost 60% of the S&P 500, they make up less than 30% of the companies. So if all of a sudden, you know, if if the three strongest groups are leading and the others are not doing as well, sideways, consolidating, maybe going down or maybe going up a little bit, but not nearly as much. Many of the breath indicators that are based on the number of companies will start to show divergences. It'll make it look like there's not enough participation.

[00:14:42]That's just flatout wrong. In 2018, the technology group was 20% of the S&P 500.

[00:14:50]It's now 37% of the S&P 500. If you ignore technology and start looking at all of these other sectors that don't have much representation in the S&P 500 and you start making S&P 500 decisions based on those companies, I think you're making a big mistake.

[00:15:12]That's what my experience has taught me over the years. I want to stay away from making decisions on breath indicators that don't tell the true story, the whole picture. The picture is that 60% of the S&P 500 is driven by these three groups and only 28% of the companies come from those three groups. So keep that in mind when you're looking at breath. And I'm not saying don't follow breath. That's completely up to you. If it helps you, by all means follow it. I just don't find that it helps me in trying to call the market. And that's why I ignore breath indicators. you don't see me talk about them because I just don't they just don't work for me.

[00:15:54]It's that simple. All right. Uh, a couple things um before we get back to some charts. If you go over to earningsbeats.com, our home, first thing I want to point out is we are in the midst of our spring special. So, if you like what we do at earningsbeats, you want to give us a shot for a year. I can tell you right now, you're going to save $200 on an annual plan. And our annual plan is much much cheaper than the monthly plan to begin with. With the $200 off, you're probably going to be saving about 55 60% off of the monthly cost. So, if you are thinking about joining Earnings Beats, now is the time to do it. Save the $200 and get that annual package. Also, if you want to just learn more about it, we do have a free newsletter, completely free, no credit card required. You can scroll down, sign up, name and email address for that earnings beats digest, uh, and start to learn a little bit more about the way we approach the market. One more thing I want to talk about. This is a big event we've got coming up on Monday.

[00:16:56]So, I don't know if you've followed us here over the last five or six months, but we've been doing these stock fantasy drafts and my good friends at Stock Charts, Grayson Rose, Dave Keller, Julius DMPR have joined me in two prior fantasy drafts. But we're going to do our third one on Monday at noon Eastern.

[00:17:17]Even if you can't make it, you're going to want to sign up. So, over on our website, you can type in your name, email address, hit that submit button, um, and get signed up. Go to the description of this video and there will be a link to the sign up page. If you're on your mobile device, you'll see on your screen now there's a QR code. Uh, simply scan that QR code and you can register via your mobile device. This is a free event on Monday. We'll get you a copy of the recording if you sign up.

[00:17:49]Even if you can't make it, sign up.

[00:17:51]We'll get you a copy of the recording.

[00:17:53]We have a blast. It's very interactive.

[00:17:56]So, not only am I going to be busting Dave's chops and Grayson's chops and Julius's chops, trust me, they're going to be busting mine, too. But you can chime in. If we make picks you don't like, jump in. Tell us all about it. Um, love to hear your thoughts on it as well. So, anyhow, make sure you mark your calendar for Monday at noon. Sign up and join us for the Super Bowl fantasy stock draft number three. Uh, Julius won the first one. And we also have a surprise guest that joins us for these drafts. It's the scooter team at Stock Charts, Stock Charts Technical Rank. So, if you're not familiar with that, it's a relative strength formula uh indicator that was developed by John Murphy, the late great John Murphy.

[00:18:40]Relative strength's a big part. You'll find on Monday, you'll see from the rest of us how important relative strength is. Let me show you the last two fantasy drafts. This is the period that was covered on the S&P 500. It went from November 17th to February 6th. During this period, the S&P 500 went up 3.26%.

[00:19:03]Our four portfolios averaged going up 7.9%.

[00:19:07]We more than doubled the S&P 500. Draft challenge number two went from I think like February 9th to May 8th I believe. So it was this period highlighted. The S&P 500 gained 6.96%.

[00:19:25]In that one our four portfolios averaged going up 14.14%.

[00:19:32]Again more than doubling the S&P 500.

[00:19:35]So, we've gotten some pretty good names in there. I like it maybe in a selfish way because if I've overlooked any stocks, I feel like between Julius and and Dave and Grayson, they're going to point them out to me so that I'll have them um and uh can share those as well.

[00:19:53]Um, last thing I want to go over real quick is just a couple of earnings reports that came out after the bell.

[00:19:59]Dell absolutely knocked the cover off the ball. Uh Dell up 35% after hours tonight. $110 closed at $ 317 now trading at $427. I want to show you one other one that did not come out so well. Uh this was AEO American Eagle Outfitters down 11% after hours to 1595.

[00:20:23]And I want to show you these two charts and let's just look at the relative strength going into earnings. Dell Technologies flying into its earnings report. AD line absolutely strong, really powerful. Relative strength, it is leading the computer hardware group, which in turn is leading the S&P 500.

[00:20:45]This is the definition of a leading stock in a leading industry group. Am I surprised that they came out and blew away their earnings estimates and jumped $110 after hours? I'm not surprised at all. How about AEO? AEO, the AD line's been drifting lower. Price actions been going lower. Relative strength versus apparel retailers has been going down.

[00:21:10]And apparel uh retailers relative to the S&Ps going down. So, this is a lagging stock in a lagging industry group. Am I surprised that they after reporting earnings, they're down 10 11% after hours? Not at all. See it all the time.

[00:21:26]Relative strength is key. Come join us on Monday. You won't be disappointed.

[00:21:31]It's a lot of fun. It's very entertaining in addition to being educational. But, uh, we're going to have a blast. So, I hope you can join us. Uh, everybody have a great rest of your week and I'll see you next week.

[00:21:43]Happy trading.