S&P 500 Bulls Pulled a Rabbit Out Of Their Hats

Just as I called for, the bulls are winning in the battle to break above the early June highs lastingly. And it’s not through technology, communications or the defensives – the other sectors keep more or less standing ground.

So, can I wave off the selling pressure right after the opening bell? In today’s analysis, I will look at this shot across the bow, and examine the extent to which the bulls should be concerned, or not.

I reaction to Q2 tech earnings indeed overpowered the dismal quarterly GDP figures and struggling job market. Right or wrong, the stock market takes a rear view mirror look at this historic GDP plunge, treating it as a mere mini-depression. It chooses to ignore the fact that more than 54 million Americans have filed new claims for unemployment benefits, and that a total of 118 million working age Americans aren’t working (the labor participation rate in June stood at 61.5% only).

With the new stimulus around the corner, it’s betting that the unprecedented plunge in personal consumption (concentrated in services, not goods) and likewise steep dive in consumer sentiment, would be over. Right now, such bets are still paying off.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

After preceding week’s hesitation, bullish price action revived the weekly chart again. On solid volume, prices closed above the early June highs. All by themselves, I don’t see the extended weekly indicators as a cause for concern – such rationale has to stem from the daily chart, so let’s check that one next.

Another breakout attempt above the early June highs is officially in, and its rising volume is encouraging. Or does the bearish candlestick bring more than its fair share of caution? Without a downside reversal in the nearest days, the candle merely tells a story of a successful reversal of Friday’s losses.

The credit markets still lean the bullish way.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) extended gains on Friday, having earlier repelled the bears. The lower volume isn’t an issue when examining the previous volume spike. Take a look at late June, and the relative volume differential in the session following the washout one. That’s why I see Friday’s decreasing volume vs. Thursday’s high one, as no cause for concern.

Both the leading credit market ratios (please see this and many more charts at my home site) – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are broadly supporting each other. And that bodes well for the stock upswing to go on.

The ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) is in an uptrend again, and such return of the animal spirits in bonds is constructive for the stock market bulls.

The ratio of stocks to Treasuries ($SPX:$UST) paints a bit more cautious picture. Yet, its message is still of the stock bulls enjoying the benefit of the doubt.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY ratio show that Friday’s close didn’t leave stocks in a dangerously extended position. Should the HYG:SHY tailwind last as I see it likely to, then stock prices have a floor nearby.

Smallcaps and Emerging Markets

The Russell 2000 (IWM ETF) is trading weak on a very short-term basis – it didn’t manage to even close unchanged while the S&P 500 moved up. Should they have performed better, that would point to a more broad-based advance within the S&P 500 – and indeed, the daily market breadth indicators in the 500-strong index have seen better days, politely put. But back to smallcaps.

Indeed, the IWM ETF is in a vulnerable position after having defended its 200-day moving average. Should its weakness take a more impactful turn, that would surely affect the S&P 500.

Emerging markets keep their healthy consolidation going, and are slowly again approaching their early July highs. This chart’s message certainly isn’t bearish for the S&P 500.

S&P 500 Sectors in Focus

Technology (XLK ETF) is all the rage again, making new 2020 highs. Pretty extended, but the much talked about correction, hasn’t come and isn’t really here. The key driver of Friday’s S&P 500 isn’t disappointing.

Crucially, semiconductors (XSD ETF) aren’t underperforming in any dramatic fashion. Dramatic – that’s an understatement, because one day’s weakness doesn’t cut that. Move on, no crack in the dam here.

Healthcare (XLV ETF) merely refused to decline profoundly on Friday, and isn’t really acting as a market leader over the past few session. Step aside though, and the chart is healthy, and I look for an upside surprise here quite soon. Perhaps some more vaccine news slash hype would help the lackluster financials (XLF ETF) performance too.

Summary

Summing up, Friday’s S&P 500 reversal is keeping the breakout attempt above the early June highs alive. Credit markets keep acting strong, and the rise in Treasuries just serves to power the TINA (there is no alternative) trade as it pushes investors farther out on the risk curve. Farther than they would be comfortable, but still helping the stock bull at the moment. One of the key watchouts is the daily market breadth, where both the advance-decline line and advance-decline volume remain in the bearish territory. Overall, the balance of risks remains skewed to the upside, though the bulls would benefit from a tight stop-loss locking recent gains.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The S&P 500 Upleg Is Getting Underway

The battle to break above the early June highs is on, and the bulls are likely to win it more lastingly this time around, thanks to tech earnings. The runup to their aftermarket announcement has been promising, and more gains were added once the numbers came in. Can I turn from merely cautiously optimistic to broadly optimistic now?

That’s the question I’ll answer in today’s analysis by examining especially the credit markets and sectoral performance.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Yesterday’s intraday downswing was soundly rejected, and prices closed again near to the early June highs. The chop around the horizontal blue line just got a more bullish flavor. The anticipation of positive tech earnings turned into reality, and has the potential to carry the S&P 500 rally further.

Yes, that’s true just as my yesterday’s comment on the frightening advance Q2 GDP and poor unemployment data, when I wrote that these concerns:

(…) are likely to be brushed aside during the regular session’s trading – I see the focus as being rather on the upcoming stimulus details and tech earnings.

So far so good – let’s check the credit market performance next.

The Credit Markets’ Point of View

A very high volume day in high yield corporate bonds (HYG ETF) yesterday, with prices closing near their daily highs. That’s a show of strength, and a supporting rationale to drive stock prices higher next.

Investment grade corporate bonds (LQD ETF) though didn’t take part in yesterday’s HYG hooray (please see this and many more charts at my home site). At the same time though, they’re not flashing signs that would make me doubt the HYG move higher.

The overlaid S&P 500 closing prices (black line) compared with the HYG:SHY ratio show how relatively timid yesterday’s race to erase opening losses in stocks was. After the late-July soft patch in the 500-strong index, stocks are getting an increasingly stronger HYG:SHY tailwind these days. Is the resolution to the early July chop being repeated with a fledgling upswing? I think so.

S&P 500 Sectors in Focus

The renewed upleg in technology (XLK ETF) bodes well for the S&P 500, and even more so given that estimates were broadly beaten.

Healthcare (XLV ETF) recovered from the initial selling pressure, but its consolidation may have a little further to go regardless of the volume contraction that points to a bigger upcoming move. The drying selling points to an upside resolution more than anything else.

Financials (XLF ETF) also recovered from their intraday downswing, closing about unchanged. The volume though points at accumulation, which is likely to be followed by a move higher.

Consumer discretionaries (XLY ETF) keep trading in a tight range, and their intraday reversal on higher volume is similarly likely to result in another attempt to break above yesterday’s close.

Industrials (XLI ETF) didn’t dazzle yesterday, but the consolidation around their 200-day moving average is still likely to resolve with another upside move.

The first of the defensive sectors, utilities (XLU ETF) are still basing around their 200-day moving average, also with a bullish bias. The rotation into this value play is very much on.

The second one of the defensives, consumer staples (XLP ETF) keep the fire they’ve been on since late June, alive and well. While a consolidation of recent strong gains wouldn’t be unexpected, the underlying bullish trend implications are undeniable.

On one hand, there’s the theme of inflation in the pipeline, and steeply plunging greenback. But the reality of yesterday’s advance Q2 GDP took some cream off the ETF’s prices. As the dip was heavily bought, upcoming move higher appears inevitable.

Summary

Summing up, yesterday’s S&P 500 rebound off the early session’s lows got plenty of follow through next, and is likely to carry over into today’s session too. Tech earnings surprised on the upside, and so did the semiconductors (hello AMD). The rotation into formerly lagging sectors is helped by the tech regaining breath. Smallcaps performed in line with the S&P 500 yesterday, and emerging markets again took the baton. While the S&P 500 daily market breadth looks concerning (the advance-decline line moved to bearish territory) and so does the $VIX upper knot to a degree, the S&P 500 upswing is more than likely to run on, proving both factors as of fleeting and inconsequential nature.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

How Far Is Another S&P 500 Upleg?

The good-bye kiss of the line connecting the early June highs indeed meant no farewell at all. Stocks rose in the runup to the Fed, and extended gains in its aftermath. Are the signs that made me merely cautiously optimistic about the bullish resolution, gone now?

The technical picture certainly cleared up with the credit markets moving higher and technology not having a really bad day either. Will its consolidation make it through the earnings report batch later today? Semiconductors hint at a rather constructive outcome, and my yesterday’s sectoral observations remain true also today:

(…) Technology is holding up, semiconductors aren’t weakening relatively to the sector, and the rotation into healthcare, materials, and industrials is very much on. The defensives (utilities and consumer staples) are also improving their posture. Consumer discretionaries are firm, and financials are getting better relative to the index.

Let’s check the other building blocks in the outlook assessment.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Yesterday’s close above the early June highs on rising volume is a bullish turn of events as stocks continue their chop around the horizontal blue line. The Fed didn’t really surprise yesterday, and stocks liked the message of continued support – in line with the yesterday-mentioned dynamic:

(…) Regardless of the real action in precious metals (canary in the coal mine), the Fed would err on the side of not fighting inflation too soon. And thus far fighting the deflationary corona effects, the stimulus is winning and being embraced with open arms by stocks.

So, I think that the bears would be getting ahead of themselves expecting a lasting downturn right now – I treat the consolidation as one with a higher likelihood of a bullish resolution than a bearish one.

Today’s frightening advance Q2 GDP and poor unemployment data are likely to be brushed aside during the regular session’s trading – I see the focus as being rather on the upcoming stimulus details and tech earnings.

Let’s check the credit market performance.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) regained ground yesterday, and on promising volume (please see this and many more charts at my home site). The Fed didn’t disappoint, and the sideways consolidation has indeed been resolved with an upswing. The move higher is confirmed by rising investment grade corporate bonds (LQD ETF). The pre-Fed gyrations appear to be over, and with the settling dust, I look for a renewed uptrend.

Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – are moving in lockstep again. The short-term weakness is about to give way to another advance in my opinion.

The overlaid S&P 500 closing prices (black line) reveal the extent of stocks taking the cue from the HYG:SHY ratio. The 500-strong index is recovering from its recent soft patch, and is ready to extend gains in case HYG:SHY moves up again. And the ratio’s upcoming rise isn’t a far-fetched idea. The similarity to its early July chop is again being resolved with an upswing.

Smallcaps, Emerging Markets and S&P 500 Market Breadth

The Russell 2000 (IWM ETF) is trading with solidly bullish undertones. Yesterday’s rising volume brought its closing prices farther away from the 200-day moving average, and smallcaps continue trading closer to their early July highs than the S&P 500. Such a very short-term outperformance can turn into more than a few days’ affair, benefitting the stock bulls broadly.

Mirroring the technology consolidation in a way, the emerging markets (EEM ETF) aren’t going pretty much anywhere. The fact that they aren’t selling off though, points to a floor below stock prices these days.

Volatility ($VIX) has moved to the lower border of its falling wedge, and doesn’t scream that an upside breakout is knocking on the door. As a result, it won’t likely influence the prevailing direction in stocks much. And that points to the S&P 500 upswing continuation.

Summary

Summing up, yesterday’s S&P 500 rebound rekindled the bullish spirits, and the credit market posture coupled with market breadth improvements (both the advance-decline line and advance-decline volume are encouraging) reflect that precisely. Expecting the stimulus details, stocks are likely to shake off yesterday-mentioned fundamental risks and leave the effects of stalling job market and horrific GDP decline in the rear view mirror. With the Fed perceived as having the markets’ back, the path of least resistance still remains chiefly higher. Today’s tech heavyweights’ earnings will be THE bellwether speaking with a decisive tone, and I keep being cautiously optimistic.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Bullish Case for Stocks Isn’t Over Yet

The bulls didn’t seize upon Monday’s stock upswing, and prices declined in what might look as a good-bye kiss to the horizontal line connecting the early June highs. Are stocks about to roll over to the downside? Despite yesterday’s deterioration in the credit markets, I think it’s too early to jump to such a conclusion.

Technology is holding up, semiconductors aren’t weakening relatively to the sector, and the rotation into healthcare, materials, and industrials is very much on. The defensives (utilities and consumer staples) are also improving their posture. Consumer discretionaries are firm, and financials are getting better relative to the index.

Yes, going into today’s Fed and especially into Thursday’s aftermarket with earnings from selected tech behemoths, the market is likely to move higher if yesterday’s AMD results are any indication.

But let’s assess where we stand after yesterday’s closing bell.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks didn’t really improve their short-term posture yesterday. On the other hand, the renewed decline below the early June highs happened on mediocre volume, which means that it lacked broad participation by the bears. If they are serious about taking advantage of the daily indicators’ sell signals, they better show up fast.

Could the Fed be the catalyst of such a move? Hawkish policy surprises are out of the question, so would a cautious tone on the recovery perils do the trick, and send markets plunging? Regardless of the real action in precious metals (canary in the coal mine), the Fed would err on the side of not fighting inflation too soon. And thus far fighting the deflationary corona effects, the stimulus is winning and being embraced with open arms by stocks.

So, I think that the bears would be getting ahead of themselves expecting a lasting downturn right now – I treat the consolidation as one with a higher likelihood of a bullish resolution than a bearish one.

Let’s see the opinion of the credit markets.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) lost ground yesterday (please see this and many more charts at my home site), but again, the volume didn’t dazzle. Thanks to the expectations from the Fed, the sideways consolidation is more likely to resolve with an upswing than not.

Investment grade corporate bonds (LQD ETF) also declined yesterday, but the limited price move attracted significantly more in terms of daily volume increase than was the case with HYG ETF. That smacks of accumulation to me, and could point to a move higher being not that far off.

These are the indications during the current soft patch in both debt instruments. Now, it’s about those clues manifesting in their respective price actions.

Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – finetune the short-term picture of weakness. No market goes up or down in a straight line, and the ratios’ swing structure is still favoring another advance, which is more apparent from the following chart.

Overlaying the S&P 500 closing prices against the HYG:SHY chart captures the momentary dynamics. Monday’s upswing rejected, yet Tuesday’s decline can’t take prices below Friday’s lows. Another rebound attempt in stocks is likely – just take a look at the early July chop, and what followed next.

Smallcaps, Emerging Markets and S&P 500 Market Breadth

Neither the Russell 2000 (IWM ETF), nor the emerging markets (EEM ETF) have sent any clear signals yesterday. IWM ETF mirrored the S&P 500 perfectly yesterday, and EEM ETF keeps consolidating in its bid to outperform the U.S. index.

That’s as bullish as it gets. Another indication – this time that yesterday’s downswing didn’t gain much traction, as most stocks refused to participate. With such a protracted consolidation, the ball is in the bulls’ court now. How far will they run with it?

Summary

Summing up, the S&P 500 downswing appears to have the nature of wear you out rather than scare you out. With credit markets not sending a clear-cut message, one has to rely on the healthy rotation and technology not leading to the downside. With current corona cases being a non-event to stocks, it’s renewed lockdowns (dialed back reopenings), real flare-ups in the U.S. – China tensions, or policy missteps sapping the fragile recovery, that can hurt the stock bull. Tomorrow’s tech heavyweights’ earnings will be THE bellwether, and it pays going into that moment with one’s guard up. Judged today, a renewed stock upswing is still the more likely scenario.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Making Sense of the Short-Term S&P 500 Chop

Even after yesterday’s rebound, the S&P 500 keeps trading merely at the early June highs. Is this just a reflexive rebound before the stock upswing rolls over to the downside? I don’t think so, and in today’s analysis will make the case why another leg higher is still more likely than seeing stocks plunge.

Yes, stocks are taking their time to make the next move. Little wonder given the recent technology trading – rotation can’t carry the S&P 500 upswing on its own. But the stock with the greatest weight in the index, Microsoft (MSFT), stood steady again yesterday. Part and parcel of base building in tech before the talk of a bubble arrived in earnest. That’s the best the stock bulls can hope for – and based on the semiconductors (XSD ETF) performance, they can indeed more than hope so.

Hope is a double-edged and potentially very dangerous word both in the markets and in life. It’s best to see the situation for what it is, free from rose-tinted or black-tinted glasses – which is exactly the way it should be.

Let’s take corona deaths as an example. Given the hair-raising headlines, would you expect to find such a daily fatalities chart (courtesy of Lew Rockwell, Vasko Kohlmayer and the worldometers website)?

I don’t think so. Objective minds and reality still rule, thankfully.

On Thursday, I’ve laid out the market’s sensitivities this way:

(…) as strange as it might sound, the stock market isn’t about the real economy struggles these weeks. All eyes are on the stimulus and vaccine hopes (whatever one imagines under the latter term), not on the corona case panic and hyped death charts.

Such were my yesterday’s thoughts on the policy measures dynamics:

(…) Stimulus is coming, and regardless of its final shape and size, markets are going to cheer it. The Fed is no longer in a wait-and-see weekly mode. Stocks expect a policy move, and are still positioned to benefit before inflation or economic realities (thornier road ahead than many an alphabet soup recovery projection implies) strike.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks keep moving around the line connecting the early June highs, and the daily chart is seemingly providing little clarity as to the upcoming move. I understand the price action as a prolonged base building, and look for stocks to make another move to the upside despite the weakening daily indicators.

Their sell signals would imply a downside move, but the price moves aren’t mirroring that, and neither the volume supports a reversal hypothesis currently. The lack of a true plunge thus makes the consolidation followed by more upside scenario, the more likely one.

It’s also the credit markets that are painting a far from equivocal picture.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) recovered from the intraday downswing, and closed at its new July highs. Positive price action in itself, but the move lacked convincing volume. A mixed bag calling for caution, with the bulls getting the benefit of the doubt.

The investment grade corporate bonds (LQD ETF) declined (please see this and many more charts at my home site), and that’s a short-term warning. While solidly trending higher, their current soft patch merits keeping a close eye on, as it doesn’t confirm the HYG ETF upswing.

Next come the ratios to finetune the picture. Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) aren’t in tune with each other for a second trading day running. This hesitation has the potential to spill over into upcoming sessions.

In perspective, the longer-dated Treasuries also lost ground, with both TLT ETF and TLH ETF declining. Could we be looking at a rotation into riskier plays?

The comparison of both corporate bonds’ varieties (HYG:LQD ratio) confirms that. The credit markets are indeed enjoying a relatively increased appetite for junk corporate bonds.

Then, the ratio of stocks to all Treasuries ($SPX:$UST) certainly shows that stocks aren’t falling out of favor here. To the contrary, I see the ratio as likely to challenge its July highs, and move upwards. Given the new stimulus on the horizon, it’s not out of the unexpected to see quality debt instruments gyrate on a short-term basis. Once the details are in, the dust settles, and new moves commence – that’s what I am keenly looking out for.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY chart captures the momentary tensions. After a period of stocks outperforming the ratio starting in late June, the S&P 500 is taking a breather these days.

Smallcaps and Emerging Markets

The Russell 2000 (IWM ETF) is acting constructively on a short-term basis – it’s much closer to its July highs than the 500-strong index is.

As for emerging markets (EEM ETF), that’s another cup of tea – they’re strong not only in the very short-term, but also on the medium-term basis. That’s a positive cue for U.S. stocks as well.

Summary

Summing up, the S&P 500 rose yesterday, but the credit markets aren’t unilaterally supporting the upswing. Such a short-term non-confirmation of theirs can (and likely will) be resolved within the nearest sessions. Rotation into former laggards is underway, technology is not crashing through supports, market breadth keeps being healthy, and volatility is far from trending higher. Despite the stock upswing taking more than its fair share of time to unfold, more signs favor the upcoming upswing than not.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Technology is Holding the Key to the Next S&P 500 Move

Going into Friday, I was still sticking to the bullish S&P 500 outlook. As the index declined, are the prospects of higher prices gone? Not at all, and today’s analysis will examine the signs that still lean bullish despite the precarious technology position.

Despite the S&P 500 closing below the line connecting the early June highs, continued unemployment claims rising on the state level (don’t forget about those rising ones under the federal pandemic programs either), the fate of the $600 weekly addition to unemployment benefits expiring at the end of July, or the U.S. – China confrontations.

On Thursday, I’ve laid out the market’s sensitivities this way:

(…) as strange as it might sound, the stock market isn’t about the real economy struggles these weeks. All eyes are on the stimulus and vaccine hopes (whatever one imagines under the latter term), not on the corona case panic and hyped death charts.

Stimulus is coming, and regardless of its final shape and size, markets are going to cheer it. The Fed is no longer in a wait-and-see weekly mode. Stocks expect a policy move, and are still positioned to benefit before inflation or economic realities (thornier road ahead than many an alphabet soup recovery projection implies) strike.

Talking economic realities, what about the societal and interpersonal ones? Sobering snippets of overnight U.S. corona fear transformations courtesy of Big League Politics:

  • 75 percent believe that things will never return to normal
  • 59 percent are too afraid to go back to their workplace with others
  • 75 percent feel that handshakes will no longer be customary
  • 38 percent want physical offices permanently removed and replaced with remote work
  • 53 percent are nostalgic for the good old days when people weren’t forcibly masked while the rest have seemingly become accustomed to the “new normal”.

Such shifts underscore why some sectors have it way tougher than others.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the higher timeframe perspective (charts courtesy of http://stockcharts.com ).

The weekly candlestick (please see this and many more charts at my home site) bears shape of a reversal, but is it a credible one? Weekly volume didn’t pick up, weakening the case for a trend change. The preceding week brought us a hanging man, and that didn’t bring the bears out of their caves either.

The weekly chart is thus rather neutral in its implications, but given the non-refusal (by and large) of the move above the early June highs, I still interpret the chart as bullish rather than bearish.

One close below the line connecting the early June highs, doesn’t make a breakout invalidation yet. It lack rising volume, and the noticeable lower knot also makes it suspicious.

As the bulls nibble at the late-Feb bearish gap, I expect them to overcome it eventually. Especially since all eyes are on the stimulus to counter the harsh economic realities of many real economy sectors.

Such were my Friday’s words regarding the days finishing in the red:

(…) Earlier in July, we have also experienced an odd bearish day that brought out the bears from their caves, without really changing the situation on the ground materially.

I expect the same dynamics to play out this time as well, regardless of the headlines touting more stimulus details only next week, or Trump discussing the China phase one trade deal value.

Meanwhile, the credit market signals are still pointing largely one way.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) reversed their opening weakness, and closed near the upper border of its recent range. Encouraging in itself, the move though lacked convincing volume, which makes the implications less bullish than when viewed with only price action in mind.

The ratios finetune the picture. Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) paused – with the latter declining. This one-day hesitation has the potential to spill over into upcoming sessions’ trading.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY chart shows just that the pace of stocks’ fall, has moderated. With more air out of their relative outperformance seen since late June, the judgmental scope for further declines becomes more limited. Unless the ratio plunges, that is – which is what I don’t expect it to do right now.

The recovering ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) supports the notion of the stock bull having further to run. The sectoral rotation theme stands to benefit from such a dynamic.

Smallcaps, Emerging Markets and the S&P 500 Internals

The Russell 2000 (IWM ETF) also fell on Friday, but the daily volume left quite something to be desired. For the bears, that is. As a result, Friday’s candle appears to be merely a daily setback.

Emerging markets (EEM ETF) proved stronger on Friday, and erased their opening losses almost in full. That’s positive for stocks back in the States too – it’s a starting point, and obviously more has to follow.

Volatility ($VIX) made an intraday reversal on Friday, though a retest of its opening highs wouldn’t be out of the unexpected. This upside bump appears to have a little more to run on the upside, but judging by this chart alone, the stock bull run isn’t in danger yet.

Zooming out, the weekly market breadth provides us with a broader perspective. Please note both the advance-decline line and advance-decline volume having descended into solidly negative values – but the bullish percent index solidly in bull market territory makes a case for an upcoming stock price rebound (perhaps preceded by a bit more base-building).

S&P 500 Sectors in Focus

Technology (XLK ETF) holds the key, and not merely in the short-term. On a positive note, it has reversed intraday, closing slightly above its opening values. The rising volume indicates accumulation to me, lending more credibility to the bullish interpretation.

The defining moment though can’t be understated. This sector’s consolidation with an upside flavor would be very constructive for the S&P 500, as the ongoing rotation into former laggards can’t win the day due to weighting.

But the rotational stock bull signs of health are undoubtedly in. I would highlight materials (XLB ETF), healthcare (XLV ETF) and industrials (XLI ETF) as the best of the crowd, followed by the defensive utilities and consumer staples (XLU ETF, XLP ETF respectively). Consumer discretionaries (XLY ETF) are also fighting tooth and nail to keep among the leadership sectors, which is where the heavyweight financials (XLF) are slowly but surely moving too.

Once technology joins in again (or stops standing in the way as a minimum), the stock bull run can go on and leave this soft patch with bullish undertones behind.

Summary

Summing up, Friday’s S&P 500 setback hasn’t materially changed the optimistic stock outlook, and the balance of signals from related markets still keeps more than slightly favoring the bulls. Technology is the joker, the wild card that would decide the S&P 500 direction in the short run, and either prolong this two-day decline, or let stocks slowly but surely regain their footing, which they seem bound to do still.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

S&P 500 Is Hungry for Stimulus – And Will Get It

Yesterday I gave you all the reasons why a pullback in the S&P 500 was likely, and today I’ll talk about the reasons why remaining bullish is still the most sensible thing to do if you love your trading account.

In short, little has changed in terms of the outlook. The S&P 500 closed back at the line connecting the early June highs – but quite a few bullish signs emerged yesterday, solidly tipping the odds of upcoming upswing in the bulls’ favor.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The daily setback is clearly visible, but was it a game changer? I don’t think so – even with new unemployment claims coming in above expectations, and existing ones unsurprisingly stubbornly high, the focus isn’t on the harsh economic realities of many real economy sectors, but on the upcoming measures to counter them.

It’s all eyes on the stimulus – and that’s why the elevated volume is rather a sign of momentary setback and not a full-blown reversal. The late-Feb bearish gap is being put to test, and I expect the bulls to overcome it eventually. Earlier in July, we have also experienced an odd bearish day that brought out the bears from their caves, without really changing the situation on the ground materially.

I expect the same dynamics to play out this time as well, regardless of the headlines touting more stimulus details only next week, or Trump discussing the China phase one trade deal value.

Let’s check the credit market clues next, because that’s where one of the bullish signs just emerged.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) ran into headwinds yesterday, and just couldn’t extend last days’ gains. The bears pushed hard for a reversal, but were repelled well before the closing bell. The result is a hanging man candlestick – while bearish on its own, it’s unlikely that it marks more than a fleeting reversal of fortunes.

Remember that the Fed is stepping up to the plate again – Treasuries of whatever duration are salivating at the prospect of more money being thrown at the issues. As we’re at the “everyone benefits, no one pays” stage of inflation, there ain’t no breaking the stock bull’s neck yet.

Both the leading credit market ratios – high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) – highlight a daily pause (you can find this and other charts at my home site), relatively speaking.

The overlaid S&P 500 closing prices (black line) against the HYG:SHY chart shows just how far have stocks retreated yesterday. That’s a telling perspective putting into context my yesterday’s conclusion of better to be waiting for short-term mispricing opportunities. One is still staring us in the face currently.

Smallcaps, Emerging Markets and the S&P 500 Internals

The Russell 2000 (IWM ETF) brings out the second bullish sign – the smallcaps held up much better than the 500-strong index. In place of their rather usual underperformance, that’s a bullish sign. Also the IWM ETF volume yesterday points to a run-of-the-mill session, and not an emotionally charged battle.

That leaves only the emerging markets (EEM ETF) declining in unison with the S&P 500 yesterday. Should the U.S. – China tensions get ratcheted up a notch or two, that would work to lift the U.S. dollar and send the stock bulls temporarily packing. Remember though that a fallout in relations isn’t in the interests of either party – and the weak reaction in both the greenback and stocks reveals the market treating it as a flash in the pan.

Even the daily market breadth didn’t dip profoundly into the bearish territory as the advance-decline line shows chiefly. The bullish percent index is still solidly bullish, and that means dips better be bought.

The fact that market breadth didn’t take a hit yesterday, shows that the plunge was driven by tech (XLK ETF) with the other sectors more or less refusing to participate broadly. Even semiconductors (XSD ETF) didn’t decline as profoundly as technology did. All of these are in your face signs that the stock bull has much farther to run, and all we’re seeing, is a healthy consolidation coupled with sectoral rotation.

Summary

Summing up, yesterday’s S&P 500 setback hasn’t materially changed the optimistic stock outlook, and the bullish signals arising out of Thursday’s session support this conclusion. With credit markets not yielding and technology consolidating its meteoric gains, it’s time for the beaten-down areas to start catching up, and lift the index. Unless the unexpected happens and stimulus doesn’t appear on time to support the real economy and the markets (it will appear), the stock bull run is immune to the temporary shocks of U.S. – China retaliations caliber. With lockdowns thankfully failing to gain much traction not just on the federal level, the risks in stocks remain skewed to the upside.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Upswing Challenge Is Likely, But Won’t Derail the Stock Bull Run

The S&P 500 closed farther from the early June highs than the day before. The bull is telling us it wants to run, now that it’s becoming apparent that the bears are out of breath since their mid-July tech ambush.

The month’s end is approaching, and so is the window of opportunity to extend the $600 weekly addition to unemployment benefits, and pass the new stimulus into law before the August recess. While continuing unemployment claims under regular state programs are declining, couple that with special pandemic ones, and they’re still clinging to their highs.

But as strange as it might sound, the stock market isn’t about the real economy struggles these weeks. All eyes are on the stimulus and vaccine hopes (whatever one imagines under the latter term), not on the corona case panic and hyped death charts.

Time for another quick reality check.

Have you seen this comparison between New York and no-lockdown Sweden (courtesy of Lew Rockwell and David Stockman)? The markets see through that, and keep their focus on the countermeasures instead. Money printing is in our future, and won’t really end until inflation rears its ugly head.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The upper blue line marking the early June highs is getting more distant day-by-day. Volume is picking up, and the price action doesn’t exactly show the bulls as relenting. Prices keep cutting into the late-Feb bearish gap without real opposition from the sellers.

Let’s check the credit market clues next.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) again rose yesterday, but not without attempting to decline (please see this and many more charts at my home site). The volume though shows the bears weren’t really serious about it. Still, the bond ETF paused at its early June highs, and while I wouldn’t focus on those highs as a meaningful resistance strong enough to make S&P 500 crash and burn, it can exert a limited and temporary influence.

Better to look for more comprehensive clues such as the leading credit market ratios – and both the high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI), are rising together.

On a daily basis, the HYG:SHY ratio wavered a little, but stocks marched higher as vigorously as in previous days. A short-term noise that needn’t have repercussions – the key point is that both are broadly continuing higher.

That’s the message of the stocks to Treasuries ($SPX:$UST) chart too. The relative valuation of both asset classes continues favoring stocks. Yes, Treasuries remain in a secular bull market and calls for its end earlier this decade have proven premature, but it’s stocks (that is companies) that are rising faster here – as they always do when we’re in “everyone benefits, no one pays” stage of inflation.

By the way, did you know that inflation used to be about tracking the monetary base increases, and not the symptom of rising real-world prices? Talk of putting the cart before the horse – the latter is a secondary effect of a greater money pool chasing the same amount of goods and services.

Smallcaps, Emerging Markets and the S&P 500 Internals

The Russell 2000 (IWM ETF) took to yesterday’s S&P 500 cue. Rising, but the drawn-out underperformance goes on. Little wonder given that smallcaps are more connected to the real economy than the 500-strong index.

While I expect the S&P 500 to challenge and overcome its February highs this year, the Russell 2000 has a tougher ride ahead in doing so. The emerging markets chart shows these markets having started to outperform already – which the smallcaps clearly haven’t.

While emerging markets (EEM ETF) have declined yesterday, that isn’t a sign of a trend change. It calls for short-term caution as the U.S. index is a little exposed here.

The market breadth view confirms that. To see advance-decline line retreating on a stock advance, is never a short-term sign of strength. The rising bullish percent index though points in the direction of dips being better bought as we’re firmly in a stock bull market territory.

Volatility is also in favor of caution. As it challenges the early June lows, the upper knots are telltale signs of it striving to move higher next. And little wonder as the real world outlook didn’t get brighter or calmer over the recent weeks. The coming stimulus will buy us some time, and encouragingly, the Fed is no longer in a week-to-week tightening mode. Obviously though, stocks are banking on more.

Summary

Summing up, the health of the S&P 500 upswing yesterday leaves quite a bit to be desired, and highlights a solid likelihood of upcoming weakness in stocks. Nothing extraordinary in its outlook-changing power though – the stock bull is alive and well, thriving on sensible rotation. What I look for, is a temporary setback that would bring down the rising greed so as to capitalize on short-term mispricing opportunities (or disappearing cautionary signs) within the stock bull run.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Slow Grind Higher Above the Early June Stock Highs

The S&P 500 upswing extended gains, yet retreated before yesterday’s closing bell. To a certain degree, the accompanying bullish signals lost their luster too. The air is getting thinner as stock prices cut into the late-Feb bearish gap. Has this been the turning point in the great bull run, or just a modest preview of more fierce battles to be fought?

I’m definitely leaning towards the latter possibility. Far from having thrown cold water on the bull run, it’s a gentle test of the bulls’ resolve. In today’s analysis, I’ll lay out quite a few good reasons why, and also discuss the signs pointing towards caution.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks have peeked above the early June highs some more yesterday, and the daily volume has risen too. The candle’s shape though isn’t universally bullish in its interpretation, and that’s because of the upper knot.

It means that the bears stepped in, and enjoyed partial success in driving prices lower. Will the selling attempt continue in the short-term? It’s possible, but the volume examination doesn’t attest to high chances of it to succeed lastingly.

The benefit of the doubt still remains with the bulls – and it’s not only because of the credit market action.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) scored some more gains yesterday, but met with selling pressure before the closing bell too (this and many more charts are available at my home site). The modestly rising daily volume shows that no fierce battle has been fought so far.

Both the leading credit market ratios – the high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) support each other’s upswing – and that points higher for the S&P 500 as well.

On a daily basis, stocks wavered against the HYG:SHY ratio – wavered as in refused to continue outperforming to the same degree as in recent days. That’s a short-term cause for concern merely though.

I consider it to be just a daily fluctuation that lacks further implications for now. The bulls have the initiative to deal with that constructively over time.

Encouragingly, the ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) is slowly rebounding – and that points to more risk-on sentiment returning to the market place.

Spotlight on Smallcaps, Emerging Markets and the Dollar

The Russell 2000 (IWM ETF) performance yesterday is in line with the S&P 500 one – and it’s as well a sign of selling pressure emerging. Both sides aren’t however overly committed to action as the measured rise in volume shows. The bulls still remain in the driver’s seat and can overcome yesterday’s obstacle if they push just a little harder.

Emerging markets (EEM ETF) continue defending the high ground well. When I look at the below chart of the dollar, this bodes well for stock markets around the world, and also for the currently lagging ones, which are the U.S. ones.

A word of caution regarding the USDX though, as that’s arguably the leading sign calling for some caution right now. While I am not calling for one, I wouldn’t be too surprised if a short-term consolidation (a reflexive rebound) happened relatively shortly. The quickening pace of recent downswing as the latest long red candle shows, raises such possibility. Remember, no markets move up or down in a straight line.

S&P 500 Sectors in Focus

Technology (XLK ETF) gave up quite some of its Monday’s gains, but that’s not enough to qualify as a reversal. The volume examination certainly doesn’t support that conclusion at the moment.

With healthcare (XLV ETF) retreating from its new 2020 intraday highs yesterday, it was the financials (XLF ETF) that assumed the leadership among the sectoral heavyweights. This would be consisent with the unfolding rotation into undervalued plays after Monday’s tech return to shine.

Consumer discretionaries’ (XLY ETF) or materials (XLB ETF) didn’t see strong moves on a closing basis yesterday, leaving the industrials (XLI ETF) and especially energy (XLE ETF) as the more eye-catching choices. With energy helped by the daily upswing in oil prices on relenting new lockdowns speculation, it leaves us with a tepid but still unfolding rotation into former laggards intact.

And as such rotations mark the health of bull markets, the takeaway is an optimistic one for the current run higher.

Summary

Summing up, the S&P 500 retreat into yesterday’s closing bell doesn’t appear to be a game changer, making the case for a daily consolidation likely. Not even the U.S.China tremors have a disproportionate impact on the 500-strong index these days, playing second fiddle to stimulus and vaccine expectations. The summer doldrums’ initiative remains with the bulls as the improving daily market breadth shows. Despite the uptick in put/call ratio, greed is making a steady but slow return into the market place, which calls for cautious approach to risk management. I would say that seeking short-term mispricing in order to capitalize on such temporary imbalances is the preferred course of action. In doing so, let’s keep in mind that the trend remains up – the slow grind higher rules these days.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Prospects of S&P 500 Above the Early June Highs

The announced S&P 500 upswing is underway, and the early June highs have been overcome on a closing basis. Will the regular trading’s final hour sprint carry over into today’s session? Are the bulls as strong as the one-sided result of Monday’s trading suggests?

That’s not a foregone conclusion, because we’ve seen quite a shift from Friday’s sectoral dynamics. In today’s analysis, I’ll dive into the internals and lay out the case why the bulls still enjoy the benefit of the doubt, regardless of the persisting bearish sentiment and double top talk.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The extended launching pad above the mid-June tops propelled stocks above the early June highs. The volume of the move has been relatively muted, though. On a standalone basis, that’s not an issue, as rising volume can confirm higher prices in the coming days. The white body without a striking upper knot shows that the bulls are in the driver’s seat – that’s no sign of a reversal.

Are the credit markets in tune with the daily chart’s perspective?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) indeed scored strong gains yesterday, but on really low volume. One day isn’t a cause for a full-blown concern, but I would prefer to see it improving over the coming sessions so as to confirm the HYG price direction more convincingly.

The investment grade corporate bonds (LQD ETF) support the HYG upswing to continue – just as the HYG swing structure does.

The high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio is in tune with the overlaid S&P 500 closing prices (please see this and many other charts featured on my home site), and both are moving higher. Stocks are already above the early June highs, while HYG:SHY has a bit more to go still. The current setup is not a screaming divergence, though – the bulls have the initiative to solve that constructively.

Spotlight on Market Breadth, Smallcaps and Emerging Markets

Both the advance-decline line and advance-decline volume have seen better days, and their readings reflect a short-term non-confirmation. Narrowing leadership is not a good omen for the bulls.

The Russell 2000 (IWM ETF) didn’t rise yesterday – the smallcaps have paused when they instead could have risen in line with Friday’s spirit of rotation into value plays. This is as well concerning on a short-term basis.

On the other hand, emerging markets (EEM ETF) did confirm yesterday’s S&P 500 upswing, which adds weight to the bullish side of the story. It’s never a good idea to act solely based on some short-term non-confirmations – instead, it pays to form as comprehensive picture as it gets, and then act on it.

The USD adds more color to the emerging markets story. There is no mad rush into dollars underway as the measured move lower attests to, which highlights no deflationary squeeze in the moment.

S&P 500 Sectors in Focus

Technology (XLK ETF) was the driver of yesterday’s upswing, and its heavyweight stocks significantly gained ground. Incresing volume also lends credibility to the daily upswing.

Crucially, the semiconductors (XSD ETF) outperformed again, foretelling further tech gains as very likely indeed.

The value plays, the former laggards, disappointed yesterday, but let’s discuss the sectors one by one.

Healthcare (XLV ETF) treading water, materials (XLB ETF) declining on inconclusive volume, and consumer discretionaries (XLY ETF) closing at new 2020 highs. The defensive plays (utilities and consumer staples – XLU ETF, XLP ETF respectively) took it on the chin yesterday, but their daily volumes aren’t convincing enough to call the moves as reversals – daily consolidations are more probable scenarios.

Summary

Summing up, the S&P 500 made the anticipated move higher, and the bulls can deal with the very short-term non-confirmations accompanying the upswing in the coming sessions. The path of least resistance in stocks still appears to be cautiously higher as the bears aren’t putting any real pressure on the bulls to prove what they’re made of.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

S&P 500 Is Knocking on the Doors of Early June Highs

Three doji days in a row, and yet the S&P 500 action is telling. After breaking above the mid-June highs, Friday’s close is within spitting distance of the June 8 top. And stocks are primed to overcome it.

It’s because they’ve been consolidating below the resistance without dropping lower meaningfully. While the sentiment has turned greedier, it’s still a shadow of the pre-corona days. For the week just in, there is 31% bulls, 45% bears and 24% neutral (AAII data) – hardly a screaming picture of all out greed.

Too many expect a bearish outcome along the double top lines – and there is no shortage of negative catalysts waiting in the wings. But the bets on new stimulus and unemployment impact softened are winning the day. What’s the best black swan indicator anyway? Sharply rising USDX – and look where it is instead. Gold isn’t getting sold off – there is no liquidity crunch present.

I also look at the healthy rotation into value stocks – into beaten down sectors – amid the froth being taken off in technology. But given the strong leadership from semiconductors, tech is still favored to join the party sooner than those looking at the P/E ratios think. Yes, rotation is what bull markets are made of.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the weekly perspective (please visit this free article on my home site where many more charts are featured).

The rebound off the 50-week moving average goes on as the S&P 500 extended gains in the past week. While the weekly volume isn’t outstanding, it’s still a tad higher than was the case a week ago.

The sizable lower knot of the week just in, got us the hanging man candlestick. That’s a bearish pattern indicating exhaustion of the buyers, but considering everything covered in today’s analysis, I wouldn’t trust it.

Next comes the daily chart (charts courtesy of http://stockcharts.com ):

The blue resistance based on mid-June tops has turned into support, and the index is undergoing a healthy consolidation close to the early June highs.

Stocks are just taking their time, in line with my Thursday’s thoughts about the potential double top and the selling nearby:

(…) the pressure to go higher is building under the surface in my opinion. I says so because should the bears be willing to sell heavily in the 3220-3230 zone (potential double top area), they would have done so – the fact they haven’t been willing to push prices materially lower, is telling by itself.

Yes, the volume behind the upswing off the late June lows hasn’t been outstanding, but only prices falling sharply and preferably also on rising volume, would make it a double top.

Prices consolidating just below are a show of latent strength to me. And even more so when I look at the credit markets.

The Credit Markets’ Point of View

The action in high yield corporate bonds (HYG ETF) is growing increasingly supportive. Friday’s doji formed at a higher level, and on increasing volume compared to Thursday. I wouldn’t be surprised to see it carry over into Monday’s session – the swing structure and indicators support more gains to come.

And so do the ratios – both investment grade corporate bonds (LQD:IEI) and high yield corporate bonds (HYG:SHY) keep pointing the same way. Their path of least resistance being undeniably higher, is in tune with more stock gains.

Looking at Friday’s dynamic alone, the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio is gently pushing the overlaid S&P 500 closing prices (black line) to rise. There are no new sudden dislocation striking the eye – the relative momentum in both, is intact. The upswing is merely taking time, and the charts don’t scream danger.

S&P 500 Sectors in Focus

The talk of the tech bubble has helped to take off some froth from the sector with P/E ratios at nosebleed levels. Technology (XLK ETF) isn’t breaking down, just looking for a short-term direction in its newfound trading range. It’s more likely than not it would eventually break out higher, and timing is the only question as the continuing outperformance in semiconductors (XSD ETF) foretells.

I view this as a healthy development, and even more so given that the tech money isn’t leaving the stock market, but moving into other plays. Considered undervalued, or taking the baton, the rotation’s winners are many.

Three star performers come next. Healthcare (XLV ETF) is taking initiative after a prolonged consolidation following an even sharper rebound off the March 23 lows than technology enjoyed. Materials (XLB ETF) are also on fire – and little surprise given the massive money printing. Last but not least, consumer discretionaries (XLY ETF) are also making new 2020 highs.

Even the defensive plays (utilities and consumer staples – XLU ETF, XLP ETF respectively) are seeing gains as market players seek undervalued stock assets instead of moving to the sidelines.

It’s been on June 5 precisely, when I made the coming inflation a central theme of the stock bull run in the article Reaping the Early Benefits of Inflation in Stocks. Yes, both the monetary and fiscal stimulus is overweighing the corona shocks that I covered extensively on April 12 in the article S&P 500 in the Aftermath of Fed’s $2.3T Backstop.

It’s not until we see inflation on the ground making a return that the stock bull would become endangered. The stimulus (existing and in the pipeline) is powerful enough to keep overwhelming the corona aftershocks (and unless lockdowns get out of hand again, the newly incoming shocks too) for a good more than a few months to come.

Corona Panic and Reality

A parting factual look at the corona deaths beyond the CDC-provided declining weekly figures that I featured in the July 9 article The Renewed S&P 500 Upswing Is Coming. Let’s see this comparison (chart courtesy of Lew Rockwell and Zero Hedge) between the Spanish flu that killed an estimated 50-100 million worldwide, and corona.

Tell me, which one was more deadly and dangerous? The country was at war, and there were no lockdowns, and the ability to make a living wasn’t crippled. People just strove to be productive, and were responsible about doing so.

Summary

Summing up, the S&P 500 is ready for more gains, and the sentiment isn’t excessively greedy as the put/call ratio shows. Smallcaps (IWM ETF) are joining in, emerging markets (EEM ETF) are doing great, and the healthy rotation within S&P 5000 sectors is on. The dollar again rolled over as I called for it to do, pointing out that the shelf life of whatever disturbances (think China, corona fear politics) is probably very temporary.

The following verbatim quote from my Friday’s summary rings true also today. Yes, I think the 3230ish area will be overcome – and I say forget the barrage of negative news and look instead how the markets are just shaking them off. That’s a strong bull run to me, higher in the face of negative news or the Fed on pause. Read the charts, follow the money – the signs of something fishy will manifest themselves well ahead. For now, the overall path of least resistance in the S&P 500 remains higher.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Get Ready, the S&P 500 Leg Higher Is Getting Underway

Wednesday and yesterday are two uneventful doji days. Wrong! The quiet breakout above the mid-June highs just got confirmed, meaning that the S&P 500 is primed to go higher eventually, I think. And in today’s analysis, I’ll lay out the case why it’s only our patience that is getting tested here.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

S&P 500 didn’t get pretty much anywhere yesterday, but the third daily close above the blue resistance marks its turn into a support now. Decreasing volume of yesterday’s lower close is also a slightly bullish omen in disguise.

Such were my thoughts yesterday about the potential double top and the selling nearby:

(…) the pressure to go higher is building under the surface in my opinion. I says so because should the bears be willing to sell heavily in the 3220-3230 zone (potential double top area), they would have done so – the fact they haven’t been willing to push prices materially lower, is telling by itself.

Yes, the volume behind the upswing off the late June lows hasn’t been outstanding, but only prices falling sharply and preferably also on rising volume, would make it a double top. Prices merely approaching previous local top don’t make it so, and could trick the bulls into taking profits off the table prematurely. The battle to overcome them might not turn out to be all that fierce in the end.

Have the scales tipped into the bulls’ favor some more with yesterday’s action in the creadit markets arena?

The Credit Markets’ Point of View

The action in high yield corporate bonds (HYG ETF) is positive. They’re keeping above the trading range of recent sessions, and the decreasing volume isn’t an issue – quite to the contrary, as its drying up on a slight move lower hints that the market really wants to go in the opposite direction, and not down.

Investment grade corporate bonds (LQD ETF) confirm the bullish HYG takeaway, and are making new highs. Their path of least resistance is undeniably higher.

Both the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio and the overlaid S&P 500 closing prices show no new sudden dislocation striking the eye. Both are moving higher, just taking their time.

As I wrote about the stock upswing yesterday:

(…) Looking under the hood of the S&P 500 thus reveals that stocks aren’t getting vulnerable and extended in any dramatic way. Their upswing continuation is amply supported by the credit markets.

Smallcaps and Technology Speak

While Wednesday’s sprint higher in the Russell 2000 (IWM ETF) hasn’t been extended yesterday, the high ground gained has been maintained. And that bodes well for the upswing in both indices to continue.

Meanwhile in tech (XLK ETF), the waves of selling appear to be running into brick walls. It doesn’t matter that yesterday’s upswing got rejected – what counts to me more, are the noticeable lower knots of the two recent sessions that point to buying power emerging to buy the dip.

From the Readers’ Mailbag

Q: Well I see TLH at record levels, only a notch smaller than its peak at march. This was not the case in June, and it is steady rising since then. I’d be very cautuous with Monica call to disregard everything and stare at these 3 points ahead. What about the 17 points downside risk to DMA? It was crossed many times now, will it hold every time?

A: It’s true that both TLH and TLT (ETFs for longer-dated Treasuries) are trading at high levels. The tape though supports the stock bulls. While it’s no ploughing in on the long side at any price, the buyers are the ones favored by the market action.

Next, some thoughts about the stock and bond bull runs.

In a bull market, bonds top first, and are followed by stocks then. The bond guys get it right most of the time – just as they did earlier in 2020. As for commodities, they top the last as e.g. the memorable oil run in 2008 shows.

On one hand, rising bond yields lend credibility to the recovery story. On the other hand, decreasing real interest rates (the reward for holding bonds once the rate of inflation is reflected) drive the TINA trade (the there-is-no-alternative trade is supported also by the dividends’ side of the story – who would have thought that selected blue chip bonds would carry a higher coupon many years or better decades ago?).

That’s an argument for why I am not concerned by the Treasuries’ bull run – it adds more fuel to the stock’s one.

Summary

Summing up, the waiting in tech appears close to being over, cyclicals aren’t throwing in the towel in any way, and the S&P 500 appears ready to take on the early June highs once more, regardless of emerging markets suffering a setback yesterday. The dollar is playing games of deceptively strong appearance only to roll over next, meaning that the credit-market supported high odds of the S&P 500 invalidating the double top theory are gaining a new lease of life.

Yes, I think the 3230ish area will be overcome – and I say forget the barrage of negative news and look instead how the markets are just shaking them off. That’s a strong bull run to me, higher in the face of negative news or the Fed on pause. Read the charts, follow the money – the signs of something fishy will manifest themselves well ahead. For now, the overall path of least resistance in the S&P 500 remains higher.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Why I See the Current Weakness in S&P 500 As Deceptive

After Tuesday’s bullish reversal, S&P 500 intraday consolidation came. How to read the doji just in? In today’s analysis, I’ll lay out the case for why I consider it to be healthy base-building – a springboard for stocks to take on the early June highs.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

S&P 500 opened with a bullish gap, and defended it to the close. The volume has picked up again, and the pressure to go higher is building under the surface in my opinion. I says so because should the bears be willing to sell heavily in the 3220-3230 zone (potential double top area), they would have done so – the fact they haven’t been willing to push prices materially lower, is telling by itself.

Yes, the volume behind the upswing off the late June lows hasn’t been outstanding, but only prices falling sharply and preferably also on rising volume, would make it a double top. Prices merely approaching previous local top don’t make it so, and could trick the bulls into taking profits off the table prematurely. The battle to overcome them might not turn out to be all that fierce in the end.

Yes, we have short-term indecision in the S&P 500, and the early June highs are keeping the gains in check so far. But which way are the scales really leaning?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) also gapped higher yesterday. Sticking to their opening gains, they’ve left the trading range of recent sessions. While the volume hasn’t been outstanding, it still hints that the path of least resistance is higher.

Both the high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) are moving in unison. The dynamic is conducive for further stock market gains as the early-May example of LQD:IEI leading HYG:SHY higher shows.

Looking under the hood of the S&P 500 thus reveals that stocks aren’t getting vulnerable and extended in any dramatic way. Their upswing continuation is amply supported by the credit markets.

Volatility, Smallcaps and Sectoral Analysis Weigh In

The $VIX has been confined to a relatively tight range throughout July, yet stocks kept their upside momentum. And I expect the upcoming volatility readings not to throw a spanner into the stocks’ works.

Yesterday’s move in the Russell 2000 (IWM ETF) is a groundbreaking development. After weeks of lagging behind within the lower bounds of the smallcaps’ relative performance, the IWM ETF finally sprang higher.

The IWM chart shows the strength behind yesterday’s move precisely. Sizable opening gap, extension of gains throughout the session, and finishing near the intraday highs. Coupled with strongly rising volume, that’s a bullish combination – especially that this is another attempt to overcome the 200-day moving average.

The tech (XLK ETF) bulls are ready to buy every dip, aren’t they? While its heavyweight stocks are bidding their time, the semiconductors (XSD ETF) keep their relative strength, and have actually closed at new 2020 highs. Once the Amazons and Microsofts of this world decide that their consolidation is over and join in, the S&P 500 stock bulls would get a mighty ally.

So far, healthcare (XLV ETF) is doing the heavy lifting, joined by financials (XLF ETF). Yes, cyclicals are firing higher as the materials (XLB ETF) or consumer discretionaries (XLY ETF) show. Both energy (XLE ETF) and industrials (XLI ETF) ticked higher yesterday, too.

Summary

Summing up, given that tech keeps largely dragging its feet in the short run, the S&P 500 rendezvous with the early June highs just underscores the cyclicals taking the baton. Talking other short-term signs of life, the Russell 2000 has unequivocally spoken yesterday. Credit market signals, emerging markets outperformance and very long-term Treasuries pausing also raise the odds for the stock upswing to continue once tech is done with its consolidation. And chances are it would soon be, because semiconductors are quietly making new highs.

Forget U.S. – China tensions, the Fed’s rare weeks of cautious tightening, or new lockdown fears. Banking Q2 earnings have been largely met with market applause, and there seems to be a never ending stream of positive vaccine news that boosts the bullish spirits. The yesterday-mentioned strong stomach to withstand sudden downturns in market perceptions of risk, might not be called upon all that often, after all.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Another Day, Another S&P 500 Reversal. Let’s Cheer It!

After the sharp downside reversal late Monday, stocks refused downswing continuation yesterday. Slowly initially, then ever more forcefully into the closing bell. That seems to be a perfect definition of a reversal, right?

In today’s article, I’ll answer how much we can applaud it, and assess the stock upswing’s prospects along the way.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks clearly reversed and closed again above their mid-June highs. The move happened on solid volume, which works to raise its prospects of success. It’s certainly positive for the bulls to see volume on a rising path since the start of July.

Let’s check next whether the credit markets support the turnaround.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) also rose strongly, and on a high volume. That’s encouraging, and raises the odds of the move’s extension. Having that in mind, the recent consolidation might be getting close to over, and unless today’s trading finishes in the red on even heavier volume, the weights remain tilted to the bullish side here.

S&P 500 closing prices (black line) overlaid on the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) chart shows that stocks got a little extended relative to this metric. Not outrageously so, but still.

Considering this signal against the momentum of preceding day though, I would put more weight on the momentum. In other words, unless the ratio tanks, stocks aren’t likely to suffer a material hiccup.

Yes, that means that they’re ignoring Monday’s California lockdown (affecting over 80% of the state’s population, altogether 30 counties). This makes for an interesting dynamic though. Given that Gov. Newsom was the first to use this indiscriminate measure, and stocks together with bonds keep ignoring this development, the markets are in effect betting on this being “a red herring on par with early April Fauci raising the specter of not emerging from lockdowns until a vaccine arrives”.

In other words, the markets are saying that Democrats won’t have the guts to become the Party of Lockdowns, because that might very well backfire come November. I am not so sure markets are being completely right on this though. Yes, they may come to a certain degree regardless of Trump and his administration not being in the least appetite for them. Ultimately though, it’s the governors and mayors who also have their say. Let’s just hope their decisions would be based on rigorous data and not on the likes of 100% positive test rates achieved by the Florida Department of Health.

S&P 500 Market Breadth, Smallcaps and Emerging Markets

The advance-decline line flipped again to the bullish territory, but could have been arguably at a higher level given where the S&P 500 closed. No reason to declare its current position as a bearish divergence though just yet. After getting today’s closing prices, we’ll be smarter but I think that the advance-decline line would add to its gains later today.

The Russell 2000 (IWM ETF) is coming back to life, but things aren’t all peachy here. The volume for an upside reversal could be easily bigger to make it more trustworthy, but smallcaps can move with a great momentum in a short period of time too.

Yes, pressure for a sizable move is building, but its yesterday’s chart is rather neutral in the IWM ETF implications for the S&P 500 in the very short run.

Emerging markets (EEM ETF), that’s another story. They’re starting to outperform the U.S. counterparts, which is encouraging for the stock bulls. Let’s see the EEM performance in detail next.

The caption says it all. There’s no reason to say that we’re looking at an island top currently. It’s in the making, thus incomplete, thus lacking implications. And given the story the volume tells, I think that it’s not trustworthy. The bullish-to-sideways slant is the prevailing outlook here.

S&P 500 Sectors in Focus

Some froth has been taken off with the heavyweights’ plunge. Some. Tech (XLK ETF) is still trading inside its steeply rising channel, but it must be noted that in June and July, the swings’magnitude has risen, and the momentum of increases has slowed down.

While that doesn’t mean that tech is about to move away from its higher highs and higher lows trajectory, it might imply that some degree of consolidation is in its future.

Yesterday, it has reversed higher on significant volume instead of keeping the index down for a day longer. Do semiconductors (XSD ETF) point to the likelihood of a more pronounced reversal in tech prices soon?

The segment has erased more of its losses than the full tech sector. This fact gently tips the scales in favor of both the XLK ETF and S&P 500 upswing to reassert themselves.

With financials (XLF ETF) coming back to life (they really have quite some catching up to do) and healthcare (XLV ETF) rising on finely dosed vaccine hype news, this bodes well for cyclicals in general, and naturally for the full index overall. Additionally, such news help to send the USDX into a tailspin, as the risk appetite increases.

Summary

Summing up, with Monday’s lockdown fears on the back burner now, stocks have reversed much of this week’s retreat. Credit markets also turned, and quite a few more factors than not appear to be aligned in the stock bulls’ favor. Tech heavyweights’ performance later today is arguably the key short-term watchout. Just as much as a quick reemergence of another lockdown news, or the ongoing Fed tightening (when would something break?). Barring these, the factors are leaning bullish, and an open position becomes a question of risk-reward ratio preferences and a strong stomach to withstand sudden downturns in market perceptions of risk.

Thank you for reading today’s free analysis. I encourage you to sign up for our daily newsletter – it’s absolutely free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Quick Souring of the S&P 500 Mood

We got that extension of Friday’s rally on Monday, as I called for. Vaccine hype news. Good for bulls with tight exit orders – I managed to take a 55-points profit off the table. But big tech (think Microsoft, Amazon) suffered with talk of its bubble rising, U.S. – China tensions increased, and California sweepingly rolled back its reopening.

Spooky stuff for stocks, and they tanked. The brightening outlook I discussed after Friday’s session, didn’t last all that long. But is the selling over now, or we better brace for some more?

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Stocks couldn’t overcome their early June intraday highs just below 3230, and reversed lower on slightly increasing volume. Closing at the blue line connecting the mid-June tops, I see that the similarity to the S&P 500 taking on the late April and early May highs might be disappearning – unless the bulls pull out a rabbit out of their hats soon.

How likely is that? Vaccine news have lifted cyclicals – financials (XLF ETF) liked that. Then, Gov. Newsom rolled back California’s reopening. Cold water that brought about a black daily candle in financials. It doesn’t matter that they closed higher than they opened. It’s the veracity of the reversal that should spook the bulls.

I would say that it’s the fear of lockdowns and not surging corona cases per se, that it the culprit here. And it could make for a quick souring of market sentiment. Not that the bulls would be in a majority now, but there were some signs of greed creeping in already. Not excessive, but still.

Big banks are starting to report today, and the JP Morgan and Well Fargo Q2 results are in. Banks better have beefed up loan reserve provisions, because if California is a preview of things to come, and as reliable one as back in March when it was the first state to impose lockdowns… then things aren’t going to look great for commercial real estate among many others.

How did yesterday’s selloff reflect upon the credit markets?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) also plunged, and ended in a similarly dicey position as the S&P 500. A ray of hope for stock bulls would be volume that didn’t stand out. But in my opinion, it’s premature to ascribe it a bullish interpretation, or to treat it as merely a consolidation just yet.

Overlaying the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) with the S&P 500 closing prices (black line) shows that stocks bulls aren’t panicking, as in really panicking. Based on recent days’ perspective, yesterday’s stock downswing appears as just a part of choppy trading ruling the markets lately.

While that’s a possible interpretation, I wouldn’t rule out some knee-jerk moves in the short run. I think the potential for more selling is definitely there, and not only because of the fundamental dynamics I described a while ago.

Enter S&P 500 market breadth.

Arguably, the advance-decline line could go still lower before its rebound happens. The bears have probably set their sights to the 200-day moving average support that’s around 3030. That would make for quite a turn in sentiment – but if you look at the daily S&P 500 chart, not that much would be happening purely technically speaking unless we break below the mentioned 200-day moving average, or the 61.8% Fibonacci retracement at around 2940.

Remember that only one bull market overcoming its 61.8% Fibonacci retracement eventually plunged below its starting point – the post WWII one. I don’t think this bull run will suffer the same fate.

For now, caution is the best course of action as the very short-term outlook is rather unclear – yet with a distinctly bearish flavor.

Summary

Summing up, yesterday’s late-day reversal has the potential to stick with us for longer due to the lockdown fear dynamics. Then, the tech ran into a brick wall yesterday. The Russell 2000 reversed on a strong volume, hinting at distribution. Credit markets show that panic hasn’t yet set in for stock bulls, which is one of the reasons why this selling wave might very well not be over yet.

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Brightening Outlook for S&P 500 Bulls

I doubted that Thursday’s downswing was a shot across the bow courtesy of the bears, and instead laid out the case for why the stock upswing is likely to renew itself when I looked at the big picture. And so far, the stock bull run remains intact, regardless of all the non-confirmations out there.

As always, I’ll lay out the facts in search of market’s upcoming direction, and they still lead me to think that the stock uptrend has more chances of continuing than not.

The bulls are prevailing in the clashing narratives and facts on the ground:

(…) I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door.

Treasuries aren’t relenting. It’s corona vaccine and expensive treatment hype against fear. Fear of surging cases and lockdowns that would derail the fragile real economy even more.

Just as I wrote in Friday’s Stock Trading Alert:

(…) Central banks are standing ready to act, and money printing remains in our future. The greatest real policy risks I see, concern lockdown miscalculations and new stimulus measures.

Any corona progress hopes lift up the cyclicals, and it isn’t just the tech, healthcare or materials that are having a good day. There is no mad rush into dollars, just into selected U.S. sectors and Treasuries. Greed is rising but isn’t at extremes. The stock bull isn’t breaking down – there is no sign of it.

Let’s dive right into the S&P 500 performance.

S&P 500 in the Medium- and Short-Run

I’ll start today’s flagship Stock Trading Alert with the weekly chart perspective (charts courtesy of http://stockcharts.com ):

After the prior rebound off the 50-week moving average, the S&P 500 extended gains in the past week. The weekly volume has encouragingly improved, if ever so slightly. Couple that with the weekly indicators though, and that still isn’t enough to call the chart unequivocally bullish.

Bullish, yes. That’s part of the anticipated rocky ride through the summer. Elections uncertainty isn’t rocking the markets as much as when November 3 comes knocking on the door. Real economy rebound, employment data, and corona policy responses will play a greater role these weeks.

All in all, the weekly chart is bullish-to-neutral in its implications.

If the second peek above the horizontal line connecting mid-June tops didn’t stick, perhaps the third one will. The volume print doesn’t help deciphering that, but chances are the strong runup to Friday’s closing bell would carry over into Monday’s session.

Still, the current dynamics reminds me of the S&P 500 taking on the late April and early May highs. After a prolonged consolidation with stocks trading more often than not above the resistance, the S&P 500 just spurted higher one day. Chances are we’ll see history repeated.

Credit markets support this assessment.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) quickly overcame the weak selling wave, and marched higher throughout the regular session. After the flag-like consolidation, the upswing looks ready to go on, regardless of not spectacular volume on Friday.

Both the high yield corporate bonds to short-term Treasuries (HYG:SHY) and investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) are positioned supportively for the stock upswing to continue.

And as you can see on the HYG:SHY chart with the overlaid S&P 500 closing prices (black line), stocks aren’t getting ahead of themselves any more dramatically since their late June upside reversal.

The stocks to Treasuries ratio ($SPX:$UST) isn’t breaking down, far from it. Risk appetite is making a comeback into the market place, as the junk corporate bonds to all corporate bonds (PHB:$DJCB) ratio’s unwillingness to decline any more in the short run is also hinting at.

As said on Friday, credit markets are telling me that the sky isn’t falling:

(…) should I see it start to, I’ll change my mind and let you know about it. With the Fed waiting in the wings, the path of least resistance remains higher. And don’t forget about the infrastructure bill or the second stimulus check either.

Some More on Stocks, USDX and Copper

The daily market breadth indicators are still positioned constructively for the upswing to continue. They’re not disagreeing or pointing to a changing character in the market. Yes, people might be looking suspiciously on liquidity-driven rallies, and the pace of money creation is truly unprecedented.

But such a rally can go on longer than thought. Equally so, the subsequent reversal might come in as really sharp. Do we see such froth currently? Not yet.

The Russell 2000 (IWM ETF) underperformance goes on, and Friday’s upswing isn’t a game changer. But such underperformance can go on for months while both indices march mostly higher, which is what I think comes next.

The greenback isn’t flashing a warning sign of a deflationary squeeze ahead, and that’s conducive for risk assets. Had I seen rising Treasuries, rising dollar, and wavering stocks – that would be a different cup of tea entirely.

There is the China recovery, there are issues at copper-producing nations and mines. But gold is holding up greatly, and generally rising since the March liquidity crunch. Even as it’s over $1800, copper is doing greatly too! Just as emerging markets (EEM ETF) are.

The copper-to-gold ratio has risen considerably. Does the red metal smell economic recovery fueled not merely by the electric car mandates? I think that the ratio’s performance is a gentle nod in favor of the stock bull run to continue.

From the Readers’ Mailbag

Q: First off. you’re the reason I subscribed to Sunprofits, your team analysis are well thought through, it’s just read and relax. Speaking of fundamentals, looking at Change in EPS vs Change in Price for Q2. Do we have to wait for a wave of bankruptcies before dot-crash II happens? Are the trends similar?

A: Thank you for the appreciation, it’s great to know my analyses are helping you! P/E ratios as a prominent decision-making tool rise in prominence for long-term investors. As I seek to capture short- and medium-term moves, they’re less useful on a daily basis. And the same goes for their quarterly comparison. As I wrote recently, it’s the P in P/E that counts for more, which in other words means that it’s about the price charts.

Bubbles can go on for longer than most people think, and the same is true for the current Fed-has-our-back one. Corporate bankruptcies are rising already, yet the S&P 500 marches higher regardless of most stocks trading below their 200-day moving averages. It’s hard to say what would be the catalyst, the pin if you will, that will prick the current stellar rise off the March 23 lows. It might coincide, precede, or lag behind the anticipated wave of bankruptcies you mention – and of course, it depends upon how one defines a wave exactly.

But this pricking doesn’t need to happen in Q2. I still think that we’ll take on the S&P 500 Feb highs this year, and stand a good chance of overcoming them before 2020 is over.

Summary

Summing up, Friday’s upside reversal is giving the stock bulls the anticipated upper hand in the short-run, which is in line with the medium-term assessment too, Credit markets are supporting the stock upswing, and appear likely to do so even more in the near future. The Russell 2000 underperformance is amply outweighed by the S&P 500 market breadth, dollar’s weakness and surging emerging markets and copper. The breakout above the short-term resistance formed by the mid-June S&P 500 tops has thus good prospects of succeeding shortly.

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

Why the Sky Isn’t Falling for the S&P 500

Wednesday’s efforts to break above the mid-June highs got thoroughly tested yesterday, and the stock bulls barely managed to stage a comeback. Is that a warning shot fired by the bears, or a show of strength by the bulls? I think I have an answer for that – and it might surprise you. It’s that it’s neither – neither the bears, nor the bulls did really show they were strong yesterday.

As such, I wouldn’t read too much into the rocky nature of yesterday’s S&P 500 move, or into today’s premarket ones for that matter. I would focus on the big picture – on answering whether the stock bull run is intact or not.

Was yesterday’s volume convincing in any way? How is the weekly candlestick shaping up? What about the credit markets? Any strong hints the smallscaps are sending? Does the tech still lead, or not?

These are the facts you’ll see examined in today’s article, and they still lead me to think that the stock uptrend has more chances of renewing itself than not.

The bulls are still slated to prevail in the clashing narratives and facts on the ground:

(…) I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door.

The put/call ratio slightly declined, the dollar stopped materially rising in the very short run, and emerging markets aren’t exactly breaking down. Central banks are standing ready to act, and money printing remains in our future. The greatest real policy risks I see, concern lockdown miscalculations and new stimulus measures.

Q2 earnings are ahead, and Biden laid out his economic plans, calling for corporate America to pay its fair share in taxes. How would that work for E in the P/E ratio? But jobs coming back (to be seen in declining continuing claims), is a more immediately pressing matter right now.

First things first – let’s dive into yesterday’s S&P 500 performance.

S&P 500 in the Short- and Medium-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

The second peek above the horizontal line connecting mid-June tops, didn’t stick, and the S&P 500 bulls had a hard time reversing intraday losses. Yet, prices closed at the resistance.

The volume isn’t sending signals that a particularly fierce battle has been fought – it looks like a rather average one. In other words, back-and-forth trading during a relatively calm week.

The weekly chart in progress highlights the short-term indecision – please visit this free article on my home site so as to see the annotated weekly chart and more. Yet, the swing structure still favors the upswing to continue – today’s close will be telling.

Whenever markets start acting jittery, it pays to remember the daily chart’s big picture:

(…) Recapping the obvious, stocks are on the upswing after the bears just couldn’t break below the 200-day moving average, which means that the momentum is with the bulls now. The daily indicators keep supporting the unfolding upswing, and volume doesn’t raise red flags either.

Until I see credible signs that the markets are getting spooked by corona, botched policy responses or anything else, there is little point in acting as if the sky is falling. It isn’t the case – to be clear, the time to turn really bearish would come, but we’re not there yet.

That was it for the illustration of zoomed out perspectives. It certainly seems premature to call for a market breakdown, given what I am going to write next.

The Credit Markets’ Point of View

Just like the S&P 500 yesterday, high yield corporate bonds (HYG ETF) opened encouragingly. Early gains turned into quite steep losses, but the beaten down bonds caught a bid to close relatively little changed.

On one hand, there wasn’t real willingness to sell more heavy, on the other hand, an upside reversal would call for higher accumulation than we have seen. Thus, we might need to go through some more of the current relatively directionless trading before seeing a decisive move. Still, upswing continuation is the favored eventual outcome here.

Investment grade corporate bonds (LQD ETF) though present a bullish chart. They have reversed Wednesday’s losses, and rose mightily, which bodes well for the HYG ETF down the road.

The caption covers it all, as the LQD:IEI ratio appears ready to lead HYG:SHY higher. Just like I said yesterday, the overreaching dynamic is one of an uptrend, which is why I look for the daily non-confirmation to be resolved with an upside move, in both ratios.

A look at the HYG:SHY chart with the overlaid S&P 500 closing prices reveals that we haven’t really seen a ground-breaking move that would have messed with the recent dynamics of their relationship.

The ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) has ticked up yesterday, which isn’t exactly what to expect in any stock slide’s opening chapter. That increases the likelihood of the HYG:SHY upswing to reassert itself.

Credit markets are telling me that the sky isn’t falling – should I see it start to, I’ll change my mind and let you know about it. With the Fed waiting in the wings, the path of least resistance remains higher. And don’t forget about the infrastructure bill or the second stimulus check either.

Market Breadth, Smallcaps and Technology

Market breadth isn’t sending clear signals apart from moving to the bearish territory in the short run. Arguably, that makes its rebound in the coming week likely, as the late-April and late-June experience shows. I don’t see a proof that the market character would have changed.

Yes, Russell 2000 (IWM ETF) underperformance goes on, but I can’t say that smallcaps would be breaking down right now.

Yesterday’s volume doesn’t scream that distribution is here. Actually, its level isn’t out of the ordinary, and given the values seen at previous local bottoms and tops, it favors the Russell 2000 upswing to restart, as the caption says.

If I saw IWM ETF weakening while the individual stock heavyweights in the S&P 500 went higher still, that would be concerning. That’s because once the smallcaps roll over to the downside, the S&P 500 would follow eventually as the generals wouldn’t just prop it up indefinitely. And this isn’t happening.

Technology (XLK ETF) certainly isn’t going to hell in a handbasket. While prices are extended, yesterday’s session showed that buy the dip still rules. In a such a strongly bullish chart, it’s dangerous to be calling tops.

Semiconductors (XSD ETF) certainly hint at the tech upswing having further to go. It’s not merely because of their greater intraday strength yesterday – it’s that just like tech, they are also trading at new 2020 highs.

I don’t see a deterioration in this leading segment that would justify turning bearish on tech. Or on the S&P 500 for that matter.

Summary

Summing up, Thursday’s decline in the S&P 500 isn’t of a world-ending nature. Given the credit market performance, it’s most likely merely a short-term hiccup for the stock bulls to deal with. Amid the market breadth deterioration, there are encouraging signs speaking for an uptick in risk-on appetite. Technology and semiconductors certainly don’t appear to be on their last legs. Once the upswing across the corporate bonds gathers steam again, stocks would get the much needed ally to break above the short-term resistance formed by the mid-June tops.

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Renewed S&P 500 Upswing Is Knocking on the Door

As expected, the S&P 500 closed back above the mid-June highs resistance yesterday. The volume slightly rose but I wouldn’t read too much into it – after all, the early June highs of around 3230 should provide for a bit stiffer battle. How the market reached the current 3160-ish levels, is what counts more.

And after the daily ride higher throughout the Independence Day week, we’re experiencing a shallow sideways correction now. When we look in retrospect, will it remind us of bullish flag? In other words, can we expect the market to power higher and soon?

I think so. Higher stock prices are likely despite the high yield corporate bonds having lagged yesterday, or the investment grade corporate bonds suffering a rare daily decline. Market reaction to today’s unemployment claims won’t probably support the bulls to a great extent, yet I expect the push higher in stocks to continue.

In today’s analysis, I’ll cover the reasons why, and also discuss the non-confirmations that I would like to see resolved constructively.

I think the breakout will be confirmed shortly, and that the bulls will prevail in the clashing narratives and facts on the ground:

(…) I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door as the rising put/call ratio shows.

The dollar is taking it on the chin, and emerging markets are seeing stellar gains, boding well for the U.S. markets. V-shaped recovery being real or not, corona vaccine hype or not, stocks love little things more than the central banks standing ready to act. And the punch bowl isn’t about to be removed any time soon.

The only policy risk is a lockdown miscalculation – did you see how the ASX 200 Composite (take that as Australia’s S&P 500) took to Victoria’s 6-week lockdown institution? Thankfully for the U.S. economy, Larry Kudlow (speaking for Fox Business) is in no mood for a second nationwide lockdown.

Yes, corona cases are rising, but testing has risen too. What about deaths? As the below CDC chart seen on OffGuardian shows, any news of their spike would be an exaggeration, as Mark Twain would probably say.

Food for thought and inquisitive minds. Sticking with the markets, let’s check upon yesterday’s S&P 500 performance.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

On Wednesday, prices rose back above the horizontal line connecting mid-June tops, on a not so extraordinary volume. But is that a necessarily bearish omen? I don’t think so – the swing structure gives the bulls the benefit of the doubt. Please note that in the latter half of May (when stocks were peeking above the late April highs), the volume on those days wasn’t outstanding either.

Such were my yesterday’s thoughts as to the daily indicators:

(…) Both the CCI and Stochastics keep supporting the upside move – it’s only the RSI that feels tired. This doesn’t concern me that much – it’s not flashing a bearish divergence, it isn’t languishing at an extreme reading. In short, it doesn’t preclude the rally from going on once the current breather is over.

And until I see credible signs that the markets are getting spooked by corona, botched policy responses or anything else, there is little point in acting as if the sky is falling. It isn’t the case – to be clear, the time to turn really bearish would come, but we’re not there yet.

Whenever markets start acting jittery, it pays to remember the big picture:

(…) Recapping the obvious, stocks are on the upswing after the bears just couldn’t break below the 200-day moving average, which means that the momentum is with the bulls now. The daily indicators keep supporting the unfolding upswing, and volume doesn’t raise red flags either.

Let’s check the credit markets’ message next.

The Credit Markets’ Point of View

Yes, high yield corporate bonds (HYG ETF) scored an upswing yesterday, but are still trading below Monday’s closing prices. Please visit this free article on my home site so as to see more of the discussed charts. To justify turning more bullish on stocks, renewed animal spirits in the junk corporate bonds arena would be needed.

And not only in junk corporate bonds – it’s that the investment grade ones (LQD ETF) have wavered yesterday. But similarly to the HYG ETF move, the volume in LQD ETF hasn’t been remarkable, which is why I am not jumping to conclusions (and definitely not bearish ones) just yet.

The respective ratios (HYG:SHY and LQD:IEI) mirror that short-term indecisiveness perfectly. A daily increase in one, and a daily decline in the other. The overreaching dynamic is though one of an uptrend, which is why I look for the daily non-confirmation to be resolved with an upside move.

Encouragingly, the ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) has turned higher yesterday. That’s a gentle nod in favor of the HYG:SHY ratio’s upswing.

As said, I don’t see a proof that the sky is falling – should I see one, I’ll change my mind and let you know about it. With the Fed waiting in the wings, the path of least resistance remains higher. And don’t forget about the infrastructure bill or the second stimulus check either.

If you look at the HYG:SHY chart with the overlaid S&P 500 closing prices, you’ll see that stocks didn’t really get more extended than they were since the late June bottom. While this condition might not last all too long into the future, I don’t expect stocks to be brought immediately down courtesy of this factor alone.

From the Readers’ Mailbag

Q: Although SPX and NDX keep rallying as you predicted, RUT is not participating much and most of the stocks other than major stocks are not rising with the index. Does that concern you? When do you think RUT will participate in the rally in significant way? Does it have to wait until COVID second wave is resolved in some way or after the second quarter reports are out?

A: Thank you, technology (XLK ETF) has indeed reached new 2020 highs yesterday, and it’s leading the index higher. In a sign of confirmation, semiconductors are also challenging their early June highs.

Russell 2000 (IWM ETF) has been indeed underperforming since the March 23 bottom. But the caption says it all – both indices have been climbing higher nonetheless. Of course, the S&P 500 outlook would be more bullish if e.g. IWM ETF traded also above its 200-day moving average.

Given the unfolding S&P 500 upleg and recovering risk appetite (see e.g. the PHB:$DJCB ratio, or the room for growth in XLF:XLU and XLY:XLP), I think it’s a question of time when Russell 2000 breaks above its 200-day average too.

But this isn’t strictly about the underperformance for any S&P 500 investor to get spooked by. I would focus on whether I see signs of distribution in the IWM ETF. There are none currently.

If I saw IWM ETF weakening while the individual stock heavyweights in the S&P 500 went higher still, that would be concerning. That’s because once the smallcaps roll over to the downside, the S&P 500 would follow eventually as the generals wouldn’t just prop it up indefinitely. And this isn’t happening.

I think the Covid-19 second wave fear is a distraction – smallcaps can rise regardless. Any policy missteps would be more concerning for small- and medium-sized businesses. The same goes for the Q2 earnings and the usual games around bringing down previously upbeat expectation in order to have a better chance to exceed them. In other words, it’s the P that counts for more in the P/E ratio.

Summary

Summing up, Tuesday’s decline in the S&P 500 was indeed merely of short-term nature, and the credit markets tentatively support the stock upswing to go on. Market breadth isn’t at daily extreme readings, emerging stocks are outperforming, and the dollar isn’t an obstacle to further stock gains. I look for the breakout above short-term resistance formed by the mid-June tops to succeed shortly as the rally’s internals including technology, semiconductors and risk-on metrics are improving.

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

 

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

The Renewed S&P 500 Upswing

The S&P 500 recovered from yesterday’s premarket slump and tried reaching for Monday’s highs again before losing altitude. Have we seen a daily reversal, and if so, how serious is this?

Given for example the weak showing in high yield corporate bonds yesterday, I think that it’s now the bears who have the opportunity to show us what they’re made of. The price action before the closing bell certainly validated my earlier decision to take the nice long profits off the table.

So, stocks have declined below the mid-June tops, yet are kissing that line again in today’s premarket trading. A little breather following the string of five consecutive days of solid gains wasn’t really unimaginable, but isn’t close to over now?

Birthing troubles or not, I still think the unfolding rally has legs enough to confirm this breakout shortly.

Such were my yesterday’s reasons why:

(…) I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door as the rising put/call ratio shows.

The summer months will be one heck of a bumpy ride, and the bullish picture is far from complete as the lagging Russell 2000 shows. But emerging markets are on fire, not too far from their February’s lower high already – Monday’s boon in the China recovery story keeps doing wonders. That’s wildly positive for world stock markets, including the U.S. ones.

V-shaped recovery being real or not, corona vaccine hype or not, stocks love little things more than the central banks standing ready to act. And the punch bowl isn’t about to be removed any time soon. Let’s take the most recent Fed policy step, which was the decision to start buying individual corporate bonds. So far, less than half a billion dollars has been deployed to this purpose – but the corporate bond market is firmly holding up nonetheless, with the Fed waiting in the wings.

With the exception of emerging markets consolidating gains yesterday, the above points remain valid also today – and likely throughout this data-light week too.

But let’s check upon yesterday’s market performance so as to form a momentary, spot-on picture.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

Monday’s breakout has given way to yesterday’s close back below the horizontal line connecting mid-June tops, but the conviction behind the move lower isn’t there at this moment. That’s what the low daily volume says.

Both the CCI and Stochastics keep supporting the upside move – it’s only the RSI that feels tired. This doesn’t concern me that much – it’s not flashing a bearish divergence, it isn’t languishing at an extreme reading. In short, it doesn’t preclude the rally from going on once the current breather is over.

And until I see credible signs that the markets are getting spooked by corona, botched policy responses or anything else, there is little point in acting as if the sky is falling. It isn’t the case – to be clear, the time to turn really bearish would come, but we’re not there yet.

Whenever markets start acting jittery, it pays to remember the big picture:

(…) Recapping the obvious, stocks are on the upswing after the bears just couldn’t break below the 200-day moving average, which means that the momentum is with the bulls now. The daily indicators keep supporting the unfolding upswing, and volume doesn’t raise red flags either.

Let’s check the credit markets’ message next.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) have broken the string of quite a few daily gains in a row, and closed not too far from their Friday’s finish. For a meaningful reversal though, I would like to see much higher volume – it’s evident that yesterday’s desire to sell doesn’t compare to the late June buying spree.

This goes to highlight that Tuesday’s setback likely has a limited shelf life.

Notably, the ratio of investment grade corporate bonds to longer-dated Treasuries (LQD:ÏEI) hasn’t turned lower yesterday. Neither have the investment grade corporate bonds themselves (LQD ETF). Please visit this free article on my home site so as to see more charts – feel free to let me know should you wish to see them included in full here, on the site you are reading this analysis now.

The action in investment grade corporate bonds is thereby telling me that the credit markets’ setback yesterday isn’t turning into a full blown concern.

On the surface, this is a concerning chart. It’s true that the ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) has seen better days. Will the breakdown attempt below the rising support line connecting its March, April and May intraday bottoms succeed? And if so, will it drag the S&P 500 lower?

Since mid-April, stocks have refused to follow the ratio much lower, and that’s an understatement. Stocks are not diving or starting to dive as they did back in February while the ratio was already trending lower. Looking at the real world situation back then and currently, we’re better prepared to deal with the challenges now, once the lockdown costs in terms of economic activity and human toll have become apparent. There is less appetite for that, thankfully.

Therefore, I think that once we see policy misstep risks removed (it’s not just about the Fed returning among the buyers. Trump’s Mount Rushmore speech helps recall the values and inspiring successes of prior generations, so I naturally wonder about the upcoming stimulus plans), the ratio will turn higher again so as to support the stock upswing that got a little ahead of itself recently when viewed by this metric alone.

Smallcaps, Tech and Other Clues in Focus

The Russell 2000 (IWM ETF) keeps underperforming, and turned lower yesterday to a greater degree than the S&P 500 did. That doesn’t bode well for the short-term.

Technology (XLK ETF) also turned down yesterday, yet the downswing’s volume was lower than that of the preceding upswing. Coupled with the semiconductors not having retreated to such a degree, that’s a short-term bullish sign, and it does outweigh the Russell 2000 non-confirmation.

Volatility ($VIX) has slightly risen yesterday, but the dollar having again stalled is supportive for stocks.

Such were my thoughts about the short-term flies in the bullish ointment:

(…) Nothing unsurmountable, and definitely not overshadowing improving market breadth in the S&P 500 or the still very low bullish sentiment that can power stocks higher – you know what they say about the times when everyone moves to the same side of the boat…

Summary

Summing up, yesterday’s decline in the S&P 500 appears merely of short-term nature, as the credit markets show there is no real willingness to sell. Investment grade corporate bonds are trending higher, and the one-day decline in high yield corporate bonds has only so much power to rock the bullish boat. I look for the breakout above short-term resistance formed by the mid-June tops to succeed shortly, and the rally’s internals including emerging markets, semiconductors and the dollar keep supporting more gains to come.

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist
Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

 

These Are the Factors Going for the S&P 500 Bulls

Since Monday’s premarket open, the S&P 500 was steadily rising before stabilizing above the mid-June tops. While the index comfortably closed at its intraday highs, can we trust this breakout? While a little breather following the string of five consecutive days of solid gains isn’t unimaginable, I think the unfolding rally has legs enough to confirm this breakout shortly.

I say so despite the uptrend in new U.S. Covid-19 cases that has many states stepping back from the reopening, rekindling lockdown speculations. I say so despite the Fed having its foot off the pedal in recent weeks, which makes for more players looking at the exit door as the rising put/call ratio shows.

The summer months will be one heck of a bumpy ride, and the bullish picture is far from complete as the lagging Russell 2000 shows. But emerging markets are on fire, not too far from their February’s lower high already – Monday’s boon in the China recovery story keeps doing wonders. That’s wildly positive for world stock markets, including the U.S. ones.

V-shaped recovery being real or not, corona vaccine hype or not, stocks love little things more than the central banks standing ready to act. And the punch bowl isn’t about to be removed any time soon. Let’s take the most recent Fed policy step, which was the decision to start buying individual corporate bonds. So far, less than half a billion dollars has been deployed to this purpose – but the corporate bond market is firmly holding up nonetheless, with the Fed waiting in the wings.

That’s just one of the factors going for the stock bulls, and today’s analysis will deal with yesterday’s market performance so as to form a momentary, spot-on picture.

S&P 500 in the Short-Run

I’ll start with the daily chart perspective (charts courtesy of http://stockcharts.com ):

If I had to pick just one chart for today, this one would cut it. Having broken above the mid-June highs, the S&P 500 closed strongly. But it’s also true that it has been languishing below 3170 despite reaching this level at the onset of European trading already, unable to extend gains during the regular session.

Recapping the obvious, stocks are on the upswing after the bears just couldn’t break below the 200-day moving average, which means that the momentum is with the bulls now. The daily indicators keep supporting the unfolding upswing, and volume doesn’t raise red flags either.

The breakout above the blue horizontal resistance line stands a good chance of succeeding. That’s true regardless of the S&P 500 futures dipping below 3145 as we speak. It’s that the majority of signs speak in favor of the upswing to continue, short-term breather to come or not.

Crucially, do the credit markets agree?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) are clearly rising in unison with the S&P 500. Please visit this free article on my home site so as to see more charts – feel free to let me know should you wish to see them included in full, on the site you are reading this analysis now.

Back to the HYG ETF – so far so good, its daily indicators are reflecting the daily upswing positively, and the volume doesn’t smack of an impending reversal. In short, there are no clouds on the junk corporate bonds chart horizon.

Investment grade corporate bonds are also powering to new highs. Then, the ratio of high yield corporate bonds to all corporate bonds (PHB:$DJCB) has bottomed at the rising support line connecting its March, April and May intraday bottoms. The question remains whether it will turn higher next so as to support the stock upswing that surely appears getting a little ahead of itself when viewed by this risk-on metric alone.

But it can’t be denied that risk is staging a comeback into the market place, albeit a painstakingly slow one.

Or isn’t it that slow when we examine the performance of technology, and other clues?

Technology and USDX in Focus

The tech sector (XLK ETF) keeps making new highs, and the volume remains quite healthy and free from bearish implications. The sector continues leading the S&P 500 higher, and perhaps most importantly, its internals have improved yesterday.

I mean semiconductors (XSD ETF). While they are not yet at their early June highs, they are within spitting distance thereof. The technical posture has improved with yesterday’s show of strength, and as the segment leads the whole tech, that means a lot.

The flies in the short-term bullish ointment are volatility ($VIX) refusing to stick to its intraday move lower, another black daily candle in smallcaps (IWM ETF) or greenback’s overnight upswing attempt.

Nothing unsurmountable, and definitely not overshadowing improving market breadth in the S&P 500 or the still very low bullish sentiment that can power stocks higher – you know what they say about the times when everyone moves to the same side of the boat…

Summary

Summing up, the S&P 500 broke above short-term resistance formed by the mid-June tops yesterday, and the rally’s internals keep supporting more gains to come. Importantly, emerging markets and semiconductors sprang to life yesterday. Signs are though mostly arrayed behind the bulls, and most importantly, the credit markets continue supporting the unfolding stock upswing regardless of Monday’s intraday wavering that could foreshadow some short-term sideways moves. The key word is could – S&P 500 market breadth is getting better while the sentiment remains too bearish to enable a sizable downswing attempt to succeed. What else can the bulls wish for?

I encourage you to sign up for our daily newsletter – it’s free and if you don’t like it, you can unsubscribe with just 2 clicks. If you sign up today, you’ll also get 7 days of free access to the premium daily Stock Trading Alerts as well as our other Alerts. Sign up for the free newsletter today!

For a look at all of today’s economic events, check out our economic calendar.

Thank you.

Monica Kingsley
Stock Trading Strategist

Sunshine Profits: Analysis. Care. Profits.

* * * * *

All essays, research and information found above represent analyses and opinions of Monica Kingsley and Sunshine Profits’ associates only. As such, it may prove wrong and be subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Monica Kingsley and her associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above are neither an offer nor a recommendation to purchase or sell any securities. Ms. Kingsley is not a Registered Securities Advisor. By reading Monica Kingsley’s reports you fully agree that she will not be held responsible or liable for any decisions you make regarding any information provided in these reports. Investing, trading and speculation in any financial markets may involve high risk of loss. Monica Kingsley, Sunshine Profits’ employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.