Friday’s strong showing is a good sign that we may be entering a new uptrend. This makes it the perfect time for risk-mindful investors to catch the bears napping and ease into some of the plays recommended by MoneyShow’s Tom Aspray.
The global stock markets, gold, and crude oil all soared Friday to finish out a rather dismal quarter on a positive note. The Euro Summit’s overnight decision to aggressively fund the teetering European banks certainly got the market’s attention.
Given these summits’ past solutions, many market professionals are justifiably skeptical that this will work, and I doubt anyone really knows the answer. The markets are sending a strong message that this time might indeed be different, as they indicate an important low was reached in early June.
Most of the experts interviewed on the leading financial networks on Friday were still bearish on stocks, as most advised the public to stay out. This to me is a bullish sign, just as it was last September when I wondered if doom and gloom could save the market.
The regular measures of individual investor and financial newsletter sentiment are not as negative as they were last fall, but the professionals are quite negative. This may be enough to provide the market with the proverbial “wall of worry.”
The financial markets responded quite well to the surprising decision by the Supreme Court to uphold the Affordable Care Act. Those who bought puts on some of the health-care stocks in anticipation that the law would be struck down were sorely disappointed. (I still like the action of the health-care stocks, and have quite a few in the “Charts in Play” portfolio.)
More details will emerge in coming weeks, but the European stock markets appear to have bottomed. The German Dax closed just below the downtrend from the March highs. In April, it was the break in the Dax below the March lows (see arrow) that had me concerned about the health of our market.
The Dax did hold above the key 61.8% Fibonacci support level at 5,819, which I was closely watching. A decisive close above 6,450 will create a new uptrend. The Eurozone blue chip Stoxx 50 index has already surpassed its mid-June highs after breaking its downtrend (line b) on June 18.
As I discussed in Friday morning’s column “Get Ready for the Next Bull Market," the technical action in the US market had already confirmed a short-term low in early June, and was very close to confirming a new intermediate-term uptrend. This could occur in the next week, as I discuss below.
The performance of the five asset classes that I have been monitoring since the start of April—bonds (TLT), the US dollar (UUP), gold (GLD), US stocks (SPY) and crude oil (USO)—also suggests a change may be underway. Only TLT and UUP are up since the start of April, but both have turned lower.
In late May, GLD started to perform better than SPY. The buy levels in the SPDR Gold Trust (GLD) that I recommended in early June have been hit, and GLD may have formed an important low with Friday’s 2.7% gain.
Holiday-shortened weeks are always a problem, especially as the Fourth of July falls in the middle of the week. Many traders are already out, and therefore the volume is likely to be low early this week. If the market continues to rally, the bears will point to the low volume as a reason they do not trust the stock market’s gains.
Even though it is a short week, there is plenty of important economic data, culminating with the monthly jobs report on Friday. The ADP employment report is out on Thursday, which may give us some clues, but the most bullish action would come if the stock market can hold up after we get another weak jobs report.
On Monday, we get the ISM Manufacturing Index and construction spending figures, followed by factory orders on Tuesday. On Thursday, in addition to the ADP Employment Report, the ISM Non-Manufacturing Index will be released.