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It’s important for investors not to get too carried away with recent gains in the market, and exercise caution when choosing sectors to invest in, notes Nicholas Vardy of The Alpha Investor Letter.
US markets opened last week with two consecutive days of strong gains. Asian markets rose as well, but with less conviction.
The S&P 500 and NASDAQ indexes both bounced up off of their 200-day moving averages. The S&P 500 Index has not closed under the 200-day moving average since September 2010. A clear move above or below this level can have a significant effect on the market's future direction.
Several indicators continue to show markets as “oversold," and due for a bounce. The question: is this bounce sustainable?
Most of the bad news spooking markets over the past seven weeks persists. Chinese inflation has remained stubborn, and the words “China” and “bubble” are now appearing together in the media like never before. The Greece situation does seem to be mitigating a bit, but a long-term resolution is still years away.
Yet the markets seem to be shaking off all of this bad news. From a market-sentiment standpoint, this is a bullish sign.
Second-quarter earnings season is due to begin soon, and this will certainly have an effect on the market’s future. However, expect a weaker, more directionless market as we head into the “Dog Days of Summer.”
Although recent, strong upward movements may make some investors feel at ease with the markets, caution is still the order of the day.