US Stock Market Overview – Stocks Close Mixed as Nasdaq Continues to Rally

US stocks were mixed on Thursday as the Nasdaq continue to rally but the Dow and S&P 500 declined. Most sectors in the S&P 500 index were lower, led down by declines in Energy and Financials, technology shares bucked the trend. Amazon continued to rip higher rising 3%, after initially falling early in the trading session. As concerns over the reclosure of some states economies rise, Amazon has continued to outperform. Jobless claims came out better than expected showing that the US jobs market is stabilizing. Stocks declined mid-day following a ruling from the US supreme court that will allow the Manhattan DA to enforce a subpoena for criminal activity.

Jobless Claims Rise Less than Anticipated

The Labor Department reported that weekly jobless claims were lower than expected last week. Claims for the week ended July 4 totaled 1.314 million, compared with the 1.39 million expected. The total marked a decrease of 99,000 from a week earlier. The four-week moving average of claims, fell 14,000 to 1.43 million. Continuing claims fell sharply, dropping 698,000 from a week earlier to 18.06 million. The previous week’s total itself was revised down by 530,000. Wall Street had been expecting 18.9 million continuing claims.

Court Say Trump Documents Must Be Released for Criminal Activity

The Supreme Court announced on Thursday that the New York district attorney could enforce a subpoena for President Trump’s financial and tax records. They also reported that the decision to allow Congress access needed to be returned to a lower court.  The decisions at the supreme course were both on 7-2 votes on Thursday send the cases back to lower courts, where Mr. Trump can raise additional objections to the subpoenas. The rulings put off, likely until after the November election, the attempts to explore Mr. Trump’s finances.

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.

The S&P 500 Ride Ahead – Rocky or Not So Rocky?

Supported by another strong ADP non-farm payrolls, the S&P 500 extended its premarket rally on Friday, but it quickly ran out of steam. How concerning is seeing most of its intraday gains gone? That’s actually not the only sign of short-term non-confirmation. Should the bulls be getting concerned here?

There are still more factors going for this rally than against it. In today’s analysis, I will present these together with the non-confirmation signs.

Credit markets are still on the upturn, stocks are undaunted by the rising U.S. Covid-19 cases and hits to reopening plans across many states.

This dynamic is still at play, and I think the bullish bias to the S&P 500 outlook will deal with the above-mentioned signs of caution in a relatively short order.

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 ):

Last week, the S&P 500 rebounded off the 50-week moving average, and closed not too far from the weekly highs. Yet, Friday’s attempt to overcome previous two weeks’ intraday tops, was rejected. So far rejected.

While the weekly indicators appear tired, that wouldn’t be a concern for the stock upswing to continue. The volume doesn’t raise red flags either – had Friday not been a bank holiday, the weekly volume would be more than adequate with its average daily addition. But it must be said that the weekly chart is bullish-to-neutral in its implications.

The daily chart shows that the bulls were again rejected on Friday at the blue horizontal resistance line. Still, I would not consider the latest candle as one characterizing a reversal – and not only because of the lower volume. The daily indicators favor the upswing to continue, short-term breather to come or not.

Let’s move to the credit markets next.

The Credit Markets’ Point of View

Friday’s candle in high yield corporate bonds (HYG ETF) mirrored the S&P 500 one, and hints at a daily consolidation – yes, more gains will come down the road, and power stocks higher.

Risk is coming back into the market place – slowly but surely. And it’s not just about the PHB:$DJCB (high yield corporate bonds to all bonds) ratio’s fledgling uptick from the late June local bottom.

As the above chart shows, investment grade corporate bonds to the longer-term Treasuries (LQD:IEI) are helping the high yield corporate bonds to short-term Treasuries (HYG:SHY) ratio to move higher, and much more still appears to come for both metrics.

The HYG:SHY ratio supports the stock upswing, but with the S&P 500 at late June highs while the ratio isn’t there yet, stocks are a bit extended here. While the charts don’t favor a reversal, a sideways consolidation for a few days wouldn’t be all too surprising – especially should the credit markets stall.

S&P 500 Market Breadth, Volatility and Other Clues in Focus

Both the advance-decline line and the advance-decline volume are moving increasingly positively for the bulls – and they have ample scope for moving higher. Bullish percent index has remained in bullish territory, and is curling higher again. In short, market breadth indicators are improving with a solid potential for more constructive action.

The favorite volatility metric, the VIX, erased much of its Friday’s decline. Is it stabilizing around the June lows, or preparing for a rebound? The stabilization scenario appears more probable.

Smallcaps have suffered two daily setbacks, and continue lagging behind the S&P 500. That’s especially visible in the latter half of June, right after their failed breakout above their 200-day moving average. While the S&P 500 is trading comfortably above it (i.e. support held and thus upswing continuation is more likely), the Russell 2000 (IWM ETF) isn’t yet. Positive resolution to this non-confirmation would certainly lift the outlook – and I think it’s a question of time merely.

The USD Index also paints a rather bullish picture for the coming week(s), and the caption says it all. The greenback won’t be standing in the way of a more risk-on environment.

On Thursday, I added these thoughts on the dollar:

(…) Wouldn’t you expect a more veracious move on new U.S. daily corona cases highs? Yeah, cases… That’s it.

Key S&P 500 Sectors and Ratios in Focus

Technology (XLK ETF) is again moving to new highs, and that’s positive for the whole index. Yet, the following semiconductors chart shows that there’s something amiss with the strength here (just like with the Russell 2000 message).

Semiconductors (XSD ETF) are lagging behind, also revealing that we’re not in a raging risk-on environment yet. That’s also the takeaway from the junk corporate bonds to all corporate bonds (PHB:$DJCB) ratio.

The consumer dicretionaries to consumer staples (XLY:XLP) ratio shows that the cyclicals (such as discretionaries or materials) are doing fine. Baltic Dry Index ($BDI) is also rising while the defensive sectors (utilities and staples) aren’t at their strongest. That’s a subtle hint that the bullish environment for stocks is intact.

Summary

Summing up, given Friday’s non-farm payrolls, the S&P 5000 gains could have been bigger, but the index is still taking time to overcome its late June local tops. Signs are though mostly arrayed behind the bulls, and the credit markets support the unfolding stock upswing. The non-confirmation in Russell 2000 or semiconductors underperforming technology will likely get resolved over the coming days or weeks as we see more rotation into cyclical and riskier plays.

The greenback isn’t likely to get in the way of further stock gains, and I expect it to rather weaken as the recovery narrative gains more traction – and if you look at emerging market stocks, they’ve done better over the June consolidation than their U.S. counterparts. Encouragingly, their Friday’s upswing has already overcome its early June highs – their outperformance means more gains for the U.S. stock indices as they explode higher again.

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.

 

US Stock Market Overview – Stocks Rise Led by Large Cap Tech; The Russell 2000 Slumps

US stocks moved higher on Wednesday following better than expected jobs data and positive manufacturing news. Large-cap tech stocks continued to lead stocks higher, driven by a nearly 5% increase in Amazon. While the Nasdaq 100 hit all-time highs, the Russell 2000 slipped. Most sectors in the S&P 500 index were higher, led by Real-estate and Communications, Energy shares bucked the trend.

Crude oil prices rose on Wednesday following a larger than expected draw in inventories. Despite the rally, the price action failed to buoy the energy sector. ADP private payrolls rose more than expected, and the ISM manufacturing index moved back into positive territory. The VIX volatility index declined below 29 for the first time in 3-months. Apple announced on Wednesday that it would close an additional 30 stores in the US bringing the total number of closed stores to 77. The uptick in cases in California had the Governor close in-room dining again.

ADP Prive Payrolls Rise more Than Expected

ADP reported on Wednesday that US Private payrolls grew by 2.369 million for the month, a bit lower than the 2.5 million. This comes following an upward revision to the prior month which was one of the largest revisions on record according to ADP. The total for June declined from the previous month, following an upward revision to 3.065 million. ADP initially said May saw a loss of 2.76 million, which was a revision of nearly 6-million jobs.

ISM Manufacturing Rose More than Expected

Manufacturing in the US increased more than expected in June according to the Institute of Supply management. The ISM manufacturing index rose to 52.6 up from May’s 43.1 and a 41.5 trough in April Expectations had been for a reading of 49.5. Employment jumped to 42.1 from 32.1 in May, while production surged 24.1 points to 57.3. New orders rose 24.6 points to 56.4 and prices increased from 40.8 to 51.3. Of the subindexes, only supplier deliveries showed a monthly decline, dropping 11.1 points to 56.9.

US Stock Market Overview – Stocks Close Higher, Led Higher by Energy; Confidence Rises More than Expected

US stocks closed higher on Tuesday as the Nasdaq continued to rally dragging up the Dow. Concerns about the spread of COVID weighed on hospitality stocks. Most sectors in the S&P 500 index were higher, led by energy, consumer staples bucked the trend. The Fed chair Jerome Powell testified in front of the House Financial panel on Tuesday and warned that there needs to be a solution for companies that cannot take on more debt. Consumer confidence rose more than expected while the Chicago PMI report came in lower than expected. The VIX volatility index moved lower on Tuesday falling to a 2-week low below 31%.

Consumer Confidence Rebounds

Consumer confidence increased more than expected in June as restriction loosened for stay-at-home orders, raising hope for an economic recovery. The Conference Board’s consumer confidence index rose to 98.1 for the month. Expectations had been for consumer confidence to rise to 91 from a May reading of 85.9. The board’s present situation index rose to 86.2 from 68.4 while the short-term outlook among consumers also improved.

Chicago PMI Survey Comes in Weaker than Expected

The US Chicago purchasing managers index rebounded slightly to 36.6 in June, after falling to a 38-year low in May. Expectations had been for a stronger rebound up to 44.5 from 32.3 in May. This comes a day before the US ISM purchasing managers report which is scheduled to be released on Wednesday.

Goldman Says Facemask Would Increase Growth

Goldman Sachs the investment banking powerhouse said that a federal face mask mandate would not only cut the daily growth rate of new confirmed cases of Covid-19 but could also save the U.S. economy from taking a 5% GDP hit instead of additional lockdowns.

Fed Chair Powell Warns of Continued Economic Weakness

Fed Chair Powell warned of extraordinary uncertainty ahead as the coronavirus continues to spread throughout the United States.   In a statement and question and answer session in front of the House financial panel Powell said that a full recovery is unlikely until people are confident that it is safe to re-engage in a broad range of activities.

Yesterday’s S&P 500 Upswing – A Reversal You Can Trust?

Stock bulls retraced over half of Friday’s plunge, but does it count as a reversal? When I look at the volume, the weekly chart, and the credit markets, I have my doubts. Or will the Powell & Mnuchin testimony and Chicago PMIs ride to the rescue, and provide a catalyst to reignite the bullish spirits? And will Thursday’s non-farm payrolls surprise to the upside, as they did a month ago?

The Fed is contracting its balance sheet for a second week in the row, and unless they publicly open the spigots (or credibly signal they’re about to do so), stocks look set to struggle in the short run. With the corona second wave fevers rising, will stocks ride unscathed through the rough patch ahead courtesy of more policy actions and all the money sitting on the sidelines being deployed? That’s a recipe for quite some volatility regardless of whether Trump later on turns tough on China or not, if you ask me.

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

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

Monday’s overnight trading opened with a bearish gap, which the bulls have closed still during the premarket session. Yet at the start of the U.S. trading, stocks again tumbled to the Asian opening lows. The bulls again countered, and repelled another selling wave just before the closing bell.

These were the overriding narratives battling it out earlier yesterday:

(…) On one hand, we have these bearish factors and strengthening corona fears (risks of renewed lockdowns or disruptions to economic activity in general), on the other the uncertain effects of Q2 window dressing and generally rather positive seasonality going into Independence Day.

Given the prominence of each of the above factors, I see the bearish side as the one favored by the odds.

Couple that with this week’s turbulences, and the potential for disappointments is high. That is, the downside risks appear disproportionate at this moment, relative to the upside.

That’s certainly the message the daily volume is sending. Are the bulls strong enough to make up for yesterday’s suspiciously low volume? Should they be earnest about this reversal, they better step in fast – and at higher prices as well, so as not to make yesterday a bull leg in a sideways-to-down trading range.

Before Monday’s closing bell, I expressed my reservations in yesterday’s intraday Stock Trading Alert. The quoted text is unchanged from yesterday’s moment of publishing (12:11 PM EST), and the charts now feature the closing prices:

(…) While stocks recovered from their opening dive below the 200-day moving average, let’s do a quick check and put the move into perspectives.

That’s this week’s chart in progress, putting today’s modest upswing into perspective. While the downside risks remains (I would highlight tomorrow’s Powell testimony, Wednesday’s ADP non-farm employment change, and especially Thursday’s non-farm employment change – a cautious tone on corona recovery by Powell, or revealing the disconnect between the real economy and stocks by either of the remaining ones), the bulls haven’t turned the tide yet – and the slowly but surely mounting corona fears on the ground aren’t on their side.

Credit market’s key representative is lagging behind also today – and actually the moment it stopped declining, coincided with the intraday stock upswing. How sustainable is that unless junk corporate bonds turn around?

Both of these points remain valid also today. Stock bulls haven’t made any progress as the S&P 500 futures keep trading at around yesterday’s closing prices, and junk corporate bonds during the remainder of the regular session dived again while stocks mostly rallied.

That increases the non-confirmation between the two – such a conclusion seems foregone. But let’s do the heavy lifting and inspect the credit markets thoroughly next.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) keep trading below the Wednesday and Thursday intraday lows, and the bears kept the reins throughout yesterday’s session too. The longer this lasts, the more dicey for the stock bulls.

But the investment grade corporate bonds to the longer-term Treasuries (LQD:IEI) ratio is already turning up, unlike the high yield corporate bonds to short-term Treasuries one (HYG:SHY). But does a two-day stabilization followed by a one-day upswing qualify as a turnaround?

Does it have the power and momentum characteristics of the mid-May plunge that came to a halt earlier than the one in HYG:SHY? Or, is it sending a signal of false strength along the lines of the early June S&P 500 plunge and subsequent recovery? Please note the bearish divergence HYG:SHY made then – while LQD:IEI powered higher, HYG:SHY made a lower high. I take that as a vote of no confidence.

The plain comparison between high yield to investment grade corporate bonds (HYG:LQD) also points to waning risk appetite. This is even more concerning when you look at the below chart.

Yesterday’s S&P 500 bump looks like Thursday’s one – but at least on that day, it was accompanied by higher values in the ratio. With the HYG:SHY yesterday plunging without end in sight, Monday’s stock upswing becomes even more suspicious.

Yes, Treasuries are rallying, both the very short-term ones (SHY ETF) and 3-7 year ones (IEI ETF), unlike the riskier corporate bonds (it’s only the LQD ETF that actually rose yesterday). I read that as a desire to park money and preference for corporate quality in times of elevated uncertainty and risks to the downside that make you think of summer 1968 as an idyll.

Or are stocks refusing to take a cue from HYG:SHY setting them up both for an explosive upside move as in the latter half of May? Unless the ratio rallies strongly in the nearest sessions, I’ll continue to stick to these yesterday-written lines:

(…) We might be at the doorstep of a challenge to the bull market assessment. The key supports to hold are the 200-day moving average (3020, and if you take the 50-week moving average, then 3010), the 61.8% Fibonacci retracement (2940) and the 50% Fibonacci retracement (2790) on the daily chart.

As I wrote on Friday, the corona recovery path & renewed fears of stifled economic activity, and election uncertainties, make for rougher trading over the summer. The elevated volatility surely reflects the potential for both upside and downside moves that can frustrate the bulls and bears alike – unless the Fed or Congress throw in their more than their two cents.

From the Readers’ Mailbag

Q: Today’s trading shows IWM is leading the market and beaten down stocks are now rising dramatically once again while SPX and NDX stocks are lagging. It looks like sector rotation is going on. SPX and NDX stocks went up too much and investors are finding value in IWM stocks. This could be a sign that market is preparing to go down again just like at the last peak. But then IWM may lead the market to keep SPX and NDX from breaking down further and market may go sideways. $4T on the side line has to go somewhere and this may keep the market afloat. HYG went down while SPX went up today which is a negative which means risk-off sentiment is intact. This conflicts with IWM rally. So, I am not sure what to make of this. How do you see this?

A: Let’s start with the situation in the now.

They say that one swallow doesn’t make a summer. While on respectable volume, the Russell 2000 (IWM ETF) indeed outperformed the S&P 500 – but can it be said that we’re on a doorstep of smallcaps leading higher? I don’t think so, and as the corona fears intensify, smallcaps will be as vulnerable as consumer discretionaries (XLY ETF) to any curtailment of economic activity – voluntary or not.

Let’s examine the nearest historic parallel, which is the April-May consolidation. Back then, smallcaps broke down below the previous lows in a deceptive show of weakness. Is such a move unfolding currently? Not really. Applying the laws of logic, could it be that they’re showing fake strength now? That’s possible but far from certain. A more plausible explanation to me is their sideways consolidation while both indices remain under pressure and looking for short-term direction.

I ascribe more meaning to the credit markets’ behavior – and their current challenges coupled with the fundamental outlook, make short-term downside in stocks more appropriate to the gloomier and gloomier headlines than not.

What would make me lean more bearish in the IWM interpretation? Should I see profit distribution in smallcaps while the S&P 500 (propped by its handful of heavyweight stocks) still marches higher, that would be it – because eventually, S&P 500 would roll over to the downside as well.

But we’re not seeing smallcaps rolling over. Once they do, I can take away the more probable sideways consolidation hypothesis.

At the same time, I think that the smallcaps getting challenged soon is more probable than not. Take it as upping the ante on the current uncertainties, and interpreting them bearishly in the market place. Are yields rising? No, Treasury prices are rising, which questions the accuracy of stock market’s interpretation of the recovery and its veracity.

Put/call ratio is again heading lower towards the more complacent readings. Advance-decline volume on NYSE is again deteriorating. The spread between junk and investment grade bonds is on the rise. All of these make for a volatile cocktail that is apt to ambush the bulls with or without an easily noticeable catalyst, and not too far down the road I think.

Summary

Summing up, Monday’s upswing probably wasn’t the game changer the bulls have been looking for. Low volume, weakening credit markets, plunging Treasury yields are stronger arguments than yesterday’s improvement in the S&P 500 advance-decline line or Russell 2000 daily outperformance. The weekly chart’s perspective remains little changed as well, and significant short-term risks persist amid the choppy trading (now with a downside bias). The medium-term examination keeps favoring the bears – just as the Fed on pause. Should the market get spooked by corona even more, that would be a cherry on the cake for the bears.

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!

 

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.

 

Russell 2000 Gaps Present Real Targets

Recent Gaps in price action in the IWM (Russell 2000 ETF) presents a clear picture of future price targets and support/resistances.  Gaps are one of the most common forms of Technical Analysis techniques.  They represent “voids” where price activity has skipped a range of price as it advances or declines aggressively.

Gaps are commonly used as targets for future price activity – where price attempts to “fill the gap”. In Technical Analysis theory, any gap that appears should eventually be “filled” by price in the future.  Thus, any open gap that does not fill is still considered an “open target range”.

IWM PROVIDES A UNIQUE PERSPECTIVE

We’re focusing on the Russell 2000 because we believe it provides a unique perspective on the markets related to the recent COVID-19 downside price swing and the recent recovery.  The Mid-Cap market sector tends to trend more quickly than the US major indexes and can sometimes provide a clear picture of more true price trends.

In this case, we’ve highlighted the downside price Gaps in YELLOW and the upside price Gaps in BLUE.  Two of the downside price Gaps have been filled recently as price advanced higher after March 21, 2020.  Additionally, the two highest downside price Gaps have also been filled – leaving the lower two still open (unfilled).

This presents a very easy to understand the method of identifying future price targets for both bullish and bearish price trends.  Either price will rally to fill the upper Gap, near $163~166, or price will breakdown into a bearish trend attempting to fill the $125~130 Gap or the $108~109 Gap.

The recent low price level near $133.28 broke previous Fibonacci low price levels from May 29. Because of this, we believe the current trend is moderately Bearish.  We would like to see a new lower low setup to confirm this new trend.  When we consider the next price move in the Russell 2000 ETF, two very clear targets become evident, either the recent upper BLUE Gap range between $145~149 or the lower BLUE Gap range between $125~129.

IWM Weekly Chart

The IWM Weekly chart does not illustrate the shorter term Gap patterns as price volatility has consolidated into longer-term price bars.  Still, we have to very clear Gaps on the Weekly IWM chart- the upper Gap, near $163~166, and the lower Gap, near $136~141.  This lower price Gap is currently acting as a support/resistance channel for the price as the IWM price consolidates within this range.  A breakout/breakdown move is very likely as the future price trend will likely exit this Gap range with an aggressive price move.

The lower Gaps that are evident on the Daily chart are still valid price levels on this chart – we’re just not seeing them on this Weekly chart because of the compressed interval.

As we near the end of June 2020 (Q2), it is fitting that the IWM price level has stalled near this 50% Fibonacci retracement level and within the middle Gap level.  This level will likely continue to attract price as it consolidates before entering the breakout or breakdown trend.  Again, based on the Fibonacci price theory, the recent low suggests the current trend is Bearish.

The 4th of July holiday weekend is nearing and prices tend to consolidate, absent any major news or earnings data, before any major holiday.  Therefore, we may see price levels stay rather narrow this week as we await Q2 earnings and prior to the 4th of July holiday.  Stay properly protected in this market.  Any breakdown/breakout move will likely happen very quickly in the near future.

In short, I hope you glean something useful from this article. If this is the start of a double-dip, it’s going to be huge, and if it’s the start of a bear market, it is going to be life-changing.

If you are new to trading, technical analysis, or are a long term passive investor worried about what to do, you can follow my lead. I share both my investing signals and more active swing trade signals using simple ETFs at www.TheTechncialTraders.com

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

Chris Vermeulen
Chief Market Strategist
www.TheTechnicalTraders.com

 

The Darkening Clouds on the S&P 500 Horizon

Friday’s overnight gains evaporated faster than you could say Jack Robinson, and not much bottom fishing came later that day. Is the tide in stocks turning – or has it turned already? With Thursday’s financial news-driven gains reversed in a flash, it’s tempting to say so – especially when coupled with the other signs I see in the charts.

In short, more downside appears likely, confirming what I said in Friday’s analysis. A quick quote: “Despite the generally positive S&P 500 performance during the runups to Independence Day, the new Fed rules might not have saved the day yet. Trading remains choppy, corona cases just made a new U.S. daily high, and the elections are getting closer.”

Will the market agree?

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 ):

The weekly candle’s opening and closing prices were practically the same going into Friday’s session – but that day changed a lot as you can see. Within Friday’s analysis, I mentioned the tellingly long upper knots in the two prior weeks, pointing out that a daily downswing would increase the chances of seeing a reversal.

That’s what is happening, and I carried on with these observations still on Friday:

(…) Just as the March volume examination showed heavy accumulation, and stock bears unable to reassert themselves right next, last weeks’ trading smacks of distribution, of selling into strength. Yes, that’s the result of the bulls being unable to stage a comeback this week (so far – we’ll soon learn, but the odds favor a downside move).

The thorn in the bears’ side is that prices are still trading above the 50-week moving average (roughly corresponding to the 200-day moving average on the daily chart, at 3010 and 3020). Breaking below this support would likely lead to accelerated selling, but we’re having none of this so far.

What about the bullish side of the argument? It’s about moving prices back into the rising black trend channel – again, we aren’t seeing any of this.

The weekly indicators are looking fairly extended, which wouldn’t be an issue – but the weakening uptrend in CCI or the RSI continuously unable to overcome its neutral readings, is.

So, these are the reasons why I think yesterday’s financial sector news isn’t a real game changer, and why I see persisting risks to the downside. True, they might not materialize in the very short run, but the reward potential is higher for the bears here, the longer the above issues persist.

We have seen the daily downswing indeed materialize, and it brought the S&P 500 right to the 50-week moving average (and a tad below the 200-day moving average on the daily chart). These levels were pierced.

The support withstood Friday’s selling pressure, but remains in a precarious position – I am unconvinced by the little intraday bounces as the bulls really could have stepped up to the plate some more. This can’t be even called a dead cat bounce (or a toned-down base-building), raising questions about the bulls’ strength in the now.

Thursday’s gains turned history, prices closed below that day’s intraday lows, and it happened on really high volume. The Wednesday-discussed fleeting stabilization of daily indicators in the end proved temporary indeed, and the bear raid I discussed, wildly succeeded. The daily close so near the intraday lows makes follow through selling on Monday likely.

On one hand, we have these bearish factors and strengthening corona fears (risks of renewed lockdowns or disruptions to economic activity in general), on the other the uncertain effects of Q2 window dressing and generally rather positive seasonality going into Independence Day.

Given the prominence of each of the above factors, I see the bearish side as the one favored by the odds – do the credit markets agree?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) broke below the Wednesday and Thursday intraday lows in the end, and the daily indicators don’t rule out more deterioration. Not good for the stock bulls.

But the investment grade corporate bonds to the longer-term Treasuries (LQD:IEI) ratio is holding up better than the high yield corporate bonds to short-term Treasuries one (HYG:SHY). But do two days qualify as a turnaround?

I don’t think so, and the below chart tells you why.

High yield corporate bonds to corporate bonds (PHB:$DJCB) ratio has been doing badly recently, and challenges the rising support line made by the recent local lows. The appetite for more risk in the corporate bonds arena seems disappearing, which doesn’t bode well for the stock bulls.

Just take a look at how the Q1 strength in the S&P 500 vs. the weakness in the ratio turned out over the coming weeks. We might be at the doorstep of a challenge to the bull market assessment. The key supports to hold are the 200-day moving average (3020, and if you take the 50-week moving average, then 3010), the 61.8% Fibonacci retracement (2940) and the 50% Fibonacci retracement (2790) on the daily chart.

The caption says it all. It’s about direction, and both metrics appear ready to go down some more.

Let’s quote these Friday’s thoughts:

(…) I still stand by the call for rougher trading over the summer. Look, elections are drawing nearer, the polls are showing… whatever – what would happen once the markets start discounting the prospects of Biden presidency more? Markets hate uncertainty, and the Trump years brought us many pro-business policies. Will they continue? What new ones would take their place?

As summer progresses, that could influence stocks more than corona / lockdown fears. The markets would tell us as we go. As I showed you on the weekly chart, the risks are skewed more to the downside in the short- and medium-term.

Volatility appears not really willing to decline from current levels much, which supports the notion of rougher waters ahead. I don’t think it would stay this low in July or August.

The market breadth indicators highlight the shifting sands. The advance-decline line hasn’t surpassed its mid-June highs – and on a weekly basis, it’s challenging its late-April bottom. The bullish percent index also reveals the mounting troubles for the bulls.

Let’s move next to the sectoral analysis.

Key S&P 500 Sectors in Focus

Technology (XLK ETF) has stalled recently, and I wouldn’t take Friday’s downswing on high volume as a sign of accumulation just yet. What concerns me, is that this has been the start performer of the move higher off the March lows – which implies that much of the rest has been lagging behind.

Healthcare (XLV ETF) was the second sectoral heavyweight engine of growth, and it has already made a lower high (unlike the tech, which made a higher high). That’s concerning for the stock bulls, because whenever the generals are among the last to hold ground while the rest shows weakness, it’s time to put one’s guard up.

The veracity in erasing Thursday’s news-driven gains in the financials (XLF ETF), is concerning.

Consumer discretionaries (XLY ETF) approximate the healthcare performance, but how resilient will the sector be once lockdown fears rear their truly ugly head?

Among the defensive sectors, both utilities (XLU ETF) and consumer staples (XLP ETF) took it on the chin, and are approaching their mid-May lows. While that makes both leading ratios (XLF:XLU and XLY:XLP) look relatively healthy, don’t be taken in – all of these sectors are sinking currently. The only bullish interpretation possible is that the growth sectors are holding up better than the defensive ones, which would point to rotation into growth plays.

Within the stealth bull market trio, let’s start with energy (XLE ETF). Given the relative stability of oil prices in recent weeks (that’s an understatement as they’ve been slowly marching higher actually), one would expect a stronger sectoral performance – but remember that the US shale companies are under serious pressure as both Saudi Arabia and Russia price war moves have inflicted pain upon the sector.

In April, the nearest futures contract prices went even negative as so much demand has come offline. But I stand by my call for higher oil prices in Q3 and Q4 especially – just take a look at the June 22 From the Readers’ Mailbag section – I talk gold there as well.

Okay, it’s the materials’ (XLB ETF) turn now. They’re holding up relatively better, which reflects the rising inflation expectations (I cover these in the course of answering the gold question in the June 22 Stock Trading Alert).

Despite the encouraging manufacturing activity data, industrials (XLI ETF) are weaker than the materials. Taken together with energy and materials, the stealth bull market trio isn’t really helping the S&P 500 move higher, which serves as a red flag.

From the Readers’ Mailbag

Q: I read an article on seeking alpha predicting upward movement of Russell 2000 in the 3rd quarter, suggesting buying the IWM and staying long. What’s your take on this Monica?

A: Let’s start with the situation in the now.

The Russell 2000 (IWM ETF) is still acting weak, with the caption again saying it all. The prospects for it to catch up over Q2 are limited in my opinion. Once we have the election uncertainty removed, the prospects for smallcaps get better. But we might be facing corona and flu panic in autumn as well, which wouldn’t really help the sector.

So, I ask – is it really a good time to buy now?

Summary

Summing up, Friday’s session raised the specter of more selling over the coming weeks, and justifiably so. Credit market metrics have weakened, market breadth deteriorated, and volatility is far from tamed. The weekly chart is sending ominous signals while the Russell 2000 continues to underperform. Among the sectors, technology can’t save the day.

Significant short-term risks persist amid the choppy trading (now with a downside bias) characterizing last two weeks. The medium-term examination favors the bears now. Should the market get spooked by corona even more down the road, that would be a cherry on the cake for the bears.

As the saying goes, you’re on the right track with stock bulls – but stay there long enough, and you get run over – and the S&P 500 setup these days is precarious.

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 S&P 500 Wall of Worry Got Steeper on Friday

Friday’s session added a new wrinkle to the bulls, and especially its close is a fly in the ointment for Thursday’s encouraging signs. I anticipated the sideways-to-down period to arrive in July – but aren’t we at its doorstep already? The narratives haven’t changed one bit – there are the corona second wave fears coupled with the Fed’s cautious tone against the data pointing that the recovery is on and new stimulus is underway.

The bulls’ interpretations have been winning earlier in the week before the bears took initiative. How serious is this crack in the dam, enough to derail the stock bull market? I don’t think it will succeed in doing that, but rougher times for stock bulls might very well be knocking on the door already. In what I think will turn out to be summer doldrums in stocks, I stand by my call that we’re going to see quite higher S&P 500 prices in December than is the case now.

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 ):

The weekly chart shows last week’s battle precisely. After reversing prior week’s selloff on Monday and Tuesday, stocks stalled on Wednesday and Thursday. Friday’s session opened encouragingly, and it appeared the bulls will close the week decently. Yet despite two intraday rebounds, the sellers proved to be in the driving seat.

This week’s candle got a bearish flavor as a result. The lower volume isn’t as concerning as the upper shadow is. The extended weekly indicators are whispering caution here as well, regardless of being still fit to power one or a few weeks of more upside before consolidating.

Either way, the last three weeks have shown that volatility is rising again, giving us sizable swings both ways. The steep recovery of the March 23 lows that came with its own fits and starts in April and May, appears to be entering a similar period now, and as the days and weeks go by, it might very well turn out that the risks would get skewed rather to the downside than to the upside.

The week just over is a first one of its kind in another way too – not only the Fed’s balance sheet increases have been moderating prior, but we just got a first week of balance sheet contraction since the corona crisis hit. This is a piece of the puzzle that no stock bull can ignore – it’s less new money to help drive stocks (and whatever else is viewed as an anti-dollar play at that moment) higher, and helping the greenback recover.

On one hand, the Fed stands ready to support the real economy‘s recovery, on the other hand, the toying around with yield curve control doesn’t do much good to financial stocks. We all know that the recovery will be a long and thorny event spanning not merely quarters, and I suspect it could easily be years in some aspects. By some, I mean e.g. airlines, cruise ship operators, leisure and hospitality, your usual suspects.

But these are anecdotal, because I view the corona hit as having a potential for creative destruction. The emphasis goes on creative and creativity. I mean that corona is an accelerator of trends, a trigger for an overdue clean-up – for example in retail. Also, many companies are getting used to operating long-term with remote workforce, which hits the commercial real estate.

Globalization and supply chains are being reassessed. Mergers and acquisitions are marching on, and the consolidations are moving us closer to oligopolistic structures, which means less competition and better margins for companies. What we see as an extended P/E ratio now, might not be as extended more than a few quarters down the road.

That’s bringing me back to the Fed, and especially the source of upcoming stock market gains. While the central bank’s engine is sputtering in the short run (remember those implied calls that the fiscal policy has to step up to the plate? What chances does Trump’s $1T infrastructure bill stand vs. the Democrat’s $3T wish list?) and election uncertainties will creep in increasingly more, it’s the real economy’s actual performance that will be driving further stock gains. Along with the earnings recovery (also note that so many stocks are trading below their book value currently), whose not only source I hinted at above.

It will be a bumpy ride. On one hand, latest non-farm payrolls coming in above expectations is an understatement, and strong retail sales or Philly Fed manufacturing with building permits support that. On the other hand, continuing claims are sticky – little wonder with their disincentive to work through overly generous benefits at times.

Meanwhile corona is surging in the Sun Belt states, raising fears of another series of lockdowns and disruptions to economic activity. Little wonder if you look at what’s going on in Beijing. And the Red States would find it hard to reconcile with that after reopening – not that it were easier in Michigan. The virus is still here, and a reasonable coexistence must be achieved in the now – stocks seem to me more worried about the actual recovery, monetary and fiscal policy steps than another corona headache nationwide.

That’s why I think that Friday’s intraday reversal was more driven by the Fed’s guarded tone, Apple store closures (indicative for the rest of the crowd) and simply less fresh money available.

But can the Fed be tightening here? After the hockey stick since March? I see it rather as a trial balloon – will anything start to disintegrate? It’s not in their (and their mandate’s) interest to try to do that too hard. When exactly did Powell say “We are not even thinking about raising rates”? Once this event of sticking it to freeloading Europe (EUR/USD rising, which is helping the eurozone sell its balance sheet expansion plans) while keeping the US as afloat as can be, is over, I fully expect the balance sheet to keep on expanding throughout this year – given the fundamental circumstances we’re in, it can’t really be any other way.

The new money taking place of the deflationary corona black hole, is bound to lift all boats, stocks including. Yet, it’s not yet etched into the fund managers’ consciousness. Take a look at the following graph (tough to make an attribution, so let’s name them all: Bank of America, Zero Hedge and Wealth Research Group):

I’ve been in the minority since calling this S&P 500 a new bull markets so many weeks ago, and while I have reservations about a V-shaped recovery, it’s nonetheless encouraging to see both hypotheses becoming ever more broadly accepted during the last 30 days.

These sentiment figures just show you that there’s plenty of doubters and money on the sidelines to deploy. This doesn’t take away from the short- and medium-term signs of deterioration I’ll tell you about next, but illustrates that a lot of fire powder is still dry.

While stocks can take a hit, the sentiment is still too bearish to take us back into a bear market. Remember, bull markets end when there’s no one left to buy – and I see quite a few potential buyers here.

Does the daily chart really paint such a cautious tone that I am striking for the coming weeks?

It does, and not only because of the extraordinary Friday’s volume. Going into the open with a solid bullish gap and extending gains, was what I had been looking for based on Thursday’s action. But the selling pressure throughout the day was gradually picking up steam, and the above mentioned headlines (Powell, Clarida, Quarles and Apple) served as useful catalysts.

It’s the market that decides to either ignore or place a certain weight on an event, story or soundbite. And the Fed didn’t say anything really unknown and out of the blue, which is why the reaction (selling pressure) is making me worried. It might be that regardless of corona not disrupting the reopening on a large scale yet (that’s why I earlier wrote that it’s too early to sweat this one in mid-June), the sands are shifting a few weeks earlier than I thought they would. In other words, the market’s sensitivities are on the move already.

Even the daily chart as such warrants caution here. Will follow through selling strike well before we wake up to the regular session on Monday? I don’t rule out this possibility entirely but don’t view it yet as highly probable. The daily indicators are in no-man’s land.

If it comes that far, will the 61.8% Fibonacci retracement hold again, or can we carve out a local bottom way about this key support? Or is this just an isolated tremor in the protracted base building after Monday’s Fed move?

I wrote on Friday that with a pinch of salt, we’ve seen two daily inside candles. And Friday’s trading also remained within the confines of Tuesday’s wild swings. Are we building a bullish flag (poking fun here, can any buyer come up with a more bullish look at things)?

Let’s turn to the credit markets, because they take away quite some froth from the bullish explanations.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) came under pressure, and lost the opening bullish gap. Again, the positive signs from their Thursday’s performance are short-term gone, and the bulls will have to reassert themselves after Friday’s downside reversal.

Since their similar performance on Tuesday (another bullish gap coming under attack), the pace of decline has slightly moderated, but it’s nothing the bulls could call home about – the best proof of an uptrend are rising prices, which we don’t have currently (we have merely a solid potential for them).

Investment grade corporate bonds to the longer-term Treasuries (LQD:IEI) ratio offers a positive hint. This is the less risk-on ratio than the high yield corporate bonds to short-term Treasuries (HYG:SHY), and it peeked higher on Friday in what could turn out to be a temporary weakness for its more risk-on counterpart.

It’s important to note that none of these ratios is breaking down – only once they do that, the stocks can enter a period of true weakness. I made these fundamental outlook observations on Thursday, and they’re still valid today:

(…) In short, the bond markets aren’t questioning the recovery storyline, and are still more sensitive to the money spigots than hair-raising corona stories. I’m not arguing for a V-shaped recovery here, I just think that less bad is the new good as stocks are bought amid the prevailing real economy uncertainties (just when and how much will it rebound with some veracity?) and stimulus efforts as far as eye can see.

The money spigots are in a slowdown mode on a weekly basis, but I think that the Fed is just making a point that it’s not the world’s central bank ready to bail out everyone (right now). Will the markets try to test that, and will that show up in stock prices? To answer, I’ll just say that it’s been less than a week since the Fed has shown that it’s willing and ready to support the U.S. economy. And just this Friday, Fed Vice Chair Clarida said that the central bank can and will do more to support the U.S. economy.

The HYG:SHY ratio with overlaid S&P 500 prices shows that the current price action and closeness of mutual relationship of these two metrics, isn’t out of the ordinary. Right now, stocks are no longer trading that extended relative to the HYG:SHY ratio.

What we’re seeing currently, could very well turn out to be a consolidation on par with the April-May one. My Thursday’s observations still ring true today (we’re not in a period where the markets decided to take on the Fed):

(…) Take a look instead at the sizable early April gap and the trading action that followed next. There were some downside moves, yet amid generally rising stocks. And what about the mid-May non-confirmation as the HYG ETF moved lower while stocks more than held ground? While we’re not at such an advanced stage of Monday’s Fed move digestion, it pays to remember that lesson already.

If one credit market ratio spells caution, it’s this one – high yield corporate bonds against corporate bonds (PHB:$DJCB). As the junk corporate bonds aren’t compared to Treasuries, but instead to the corporate bond universe, this metric reveals the willingness to take on more risk within corporate bonds – and the short-term picture isn’t all that pretty.

It’s true that in mid-May, stocks also traded elevated compared to the ratio testing its rising support line made by the April intraday lows. Right now, the ratio isn’t that far off that line (reinforced by the mid-May test too) either.

The bearish takeaway from the ratio’s daily indicators is more pronounced than in HYG:SHY, indicating more risk aversion within the corporate bond space. And that can have negative consequences for the stock bulls. I mean in the short run, because the ratio isn’t breaking down and pulling stocks along right now.

Rising volatility ($VIX) is another short-term sign of caution. Its consolidation with a downside bias just couldn’t carry on anymore on Friday. Is it ready to march higher again relentlessly? Not necessarily, but it isn’t likely to immediately budge down either. In short, we appear to be on the doorstep of the bumpier ride ahead for stocks.

Smallcaps are still lagging behind, and the picture isn’t improving in the very short-term either. Barring an uptake in risk-on sentiment, I don’t see them likely to catch up in the short run. This also goes to highlight the risks the S&P 500 faces right now.

But the S&P 500 market breadth shows that we’re quite far into the current weakness – the advance-decline volume is at its recent extremes already. But that’s the result of Friday’s extraordinary volume – the advance-decline line still has some room before it reaches its own extreme zone, meaning that we might very well be meeting lower stock prices before long.

From the Readers’ Mailbag

Q: what is your opinion about gold and what do you think about Brent crude making impact on markets ?

A: I don’t follow gold on a daily basis, but it’s common knowledge that gold loves money printing. It has also been rather steadily rising since the Fed made its U-turn and went off its tightening plans many quarters ago. While the yellow metal hasn’t risen as strongly during the repo crisis (autumn 2019), it had been consolidating similarly to spring 2019.

Corona brought us a deflationary episode in March, and gold went sharply down. If you compare that to the pre-Lehman times, it had been weakening since mid-July 2008. The Lehman collapse (mid-September 2008) helped put a short-term floor below it, and gold rallied. But what was the Fed-Treasury response back then, was it convincing enough for the markets to turn around? No, both gold and the S&P 500 went on to make new lows (the king of metals did so in October 2008 while stocks only in March 2009).

Fast forward to today – we’re seeing the events play out much faster than back then. The quantitative easing announcement (let alone its volume) came much earlier this time (end of November 2008 was when QE1 was launched), and the market didn’t really question the authorities since. Now, the Fed’s balance sheet is over $7T, and the expansion has been the fastest ever.

Obviously, this is driving inflation expectations higher, but we are not yet seeing inflation on the ground meaningfully spiking. Yet, gold is reacting as if it were the case already. Right now, gold is not signaling another true deflationary event on the horizon or the Fed truly changing its rhetoric and behavior. But this doesn’t mean it’s safe from a short-term downside, especially if inflation keeps coming in weak. The yellow metal has a great future ahead and I expect higher prices in the quarters and years to come.

The oil part of your question ties in to gold as well, in what I think will turn out two great surprises for the markets later on. The first will be inflation rearing its head, and the other one would be higher oil prices. I say so despite the oil demand destruction that will take much patience to recover. Both of these factors will become very apparent well before the end of 2020 in my opinion, and stocks will like that.

Q: What’s your prediction for Russell 2000 in 3 months? I read small businesses usually boom after a recession more than big ones.

A: You’re asking about a time point that could very well mean the peak uncertainty about the election results. Take a look what happened in 2016 – smallcaps were not willing to rise much and were taking a dive since October 2016. Something similar could play out this time as well, but we’re not seeing smallcaps outperforming in the runup from the panic lows. That’s a watchout against being too bullish on the smallcaps right now.

Q: I’ve recently bought industrials (XLI ETF) and want to profit on the stock upswing. How do you view the chances for the sector to appreciate?

A: I think industrials are a great choice within the bull markets’ early recovery stage – they’re leading the way higher, similarly to materials (XLB ETF).

Have we seen their top? I don’t think so – there is ample room for appreciation as the recovery gets increasingly recognized as being on track. The incoming manufacturing data help to paint a bright picture too. If your investment horizon is long enough (end of 2020 as a minimum), you’re set in for really nice gains in my opinion.

Q: I am curious about your thoughts on bank stress reports coming out on Thursday and the Fed not wanting banks to respond till after the markets close.

A: While this could in theory turn out a catalyst for a sizable stock move, I think it wouldn’t be a great surprise to the markets – unless accompanied by a shift in the Fed’s narrative, which I don’t expect. Yes, they’re taking the punch bowl away on a very short-term basis, but will it last long? I don’t think so. Similarly, I think that the banks’ comments won’t push markets down in the aftermarket session. Of course, should I feel about that differently after Wednesday’s closing prices, I’ll highlight that.

Q: I’m interested in your short- and very short-term view on the AEX and DAX indices. Would appreciate your comment/analysis on this one.

A: I deal primarily with U.S. stock indices but a little international perspective certainly won’t hurt as different national stock markets aren’t moving totally independently of each other.

The S&P 500 has been more resilient that the DAX (or other eurozone indices) since the corona crisis hit, and I think the relative valuation is at an interesting point currently. I look rather at the U.S. to outperform than underperform next (we’re at the 200-day moving average support here), and the U.S. outperformance will get into a true limelight once the election uncertainty is removed. Before that, it’s a tough call, but I still slightly favor the U.S.

Fundamentally, much depends upon how the U.S. – China trade deal and globalization sentiment (supply chains reset) goes – should these tensions go into overdrive, export-dependent Germany with its stock market would suffer.

Summary

Summing up, the risk-on sentiment took it on the chin with Friday’s reversal, and while no key supports were broken, the short-term outlook has deteriorated. The credit markets’ performance is sturdier than is the case with stocks, and will set the tone for the S&P 500 amid the mixed short-term picture the index is sending. The summer doldrums for stocks that I anticipated in July, might be making an appearance already – time to buckle up, continuously assess whether stocks are or aren’t getting ahead of themselves relatively speaking, and expect more risk-off environment in the weeks ahead.

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.

 

US Stock Market Overview – Stocks Close Mixed; Dow Drop and Nasdaq Continue to Rally

US Stocks were lower on Thursday with the Dow Jones Industrial average underperforming. Most sectors in the S&P 500 index were lower led down by Real-estate, while Energy bucked the trend. Crude oil prices rebounded approximately 2% giving a boost to the energy patch. Jobless claims were higher than expected, but that failed to derail a rebound in the dollar. Spotify shares surged following an announcement from the company that they signed an exclusive deal with Kim Kardashian. Facebook announced that it took down a post from The Presidential Campaign of Donald Trump.

Jobless Claims Rise More than Expected

US jobless claims totaled 1.5 million last week, higher than the 1.3 million expected. The government report’s total was 58,000 lower than the previous week’s 1.56 million, which was revised up by 24,000. Continuing claims, or those who have been receiving unemployment benefits for at least two weeks, nudged lower to 20.5 million, a decline of 62,000 from the previous week. The total of those receiving benefits was 29.1 million as of May 30. That was a decrease of 375,522 from the previous week.

Podcasts Continue to Generate Gains

Spotify shares surged more than 12% following news that the company signed a podcast deal with reality TV star Kim Kardashian West. Additionally, Spotify announced that it has a new partnership with DC and Warner Bros. to exclusively produce and distribute podcasts featuring popular comic book characters.

Facebook Takes on Trump Campaign

Facebook reported that the social media giant took down a campaign posts and ads for President Trump, citing violations of the company’s policy against what it called organized hate. The ads, featuring a downward-pointing triangle, targeted antifa, describing the movement as “Dangerous MOBS of far-left groups.” The inverted red triangle is a marking Nazis used to designate political prisoners in concentration camps, according to the Anti-Defamation League.

US Stock Market Overview – Stocks Rally Following Fed Corporate Bond Annoucement

US stocks rebounded sharply intra-day on Monday. Initially, the major indices moved lower, with the Dow Industrials falling more than 700 points. By mid-day stocks started to turn and moved into positive territory after a Fed announced the expansion of its corporate credit purchases. All sectors in the S&P 500 index were higher led by communications and financials. Real estate was the worst-performing sector in an up tape. Manufacturing improved more than expected with the NY Empire Manufacturing survey surprising investors. The VIX volatility index whipsawed initially moving higher and testing 45, before changing direction and falling 5% on the day to close at 34. US yields moved higher as stocks rallied, with the 10-year rising to 72 basis points.

The Fed is Expanding its Bond Purchases

The Federal Reserve is expanding its corporate credit purchases to now buy individual corporate bonds, on top of the exchange-traded funds it already is purchasing, the central bank announced Monday. As part of a continuing effort to support market functioning and ease credit conditions, the Fed added functions to its Secondary Market Corporate Credit Facility. The program provides the Fed the ability to buy up to $750 billion worth of corporate credit. Its March 23 initial announcement is largely considered a watershed moment for the financial markets, reeling from the coronavirus threat spread.

Manufacturing in New York Rebounds

Manufacturing activity snapped back in the New York area this month. The Empire State Manufacturing Survey posted a reading of -0.2 in June after hitting record lows in the previous two months. Expectations had been for a reading of -35. The monthly improvement came across the board, especially in the index of future business conditions. That level rose to 56.5, its highest level since October 2009 as 68.6% of firms see expansion ahead against just 12.1% that see contraction. Big gains also came from new orders, which surged from -42.4 to -0.6; shipments, which rose 42.3 points to 3.3 and prices paid, up 12.8 points to 16.9.

US Stock Market Overview – Stocks Rebound but Finish Lower for the Week

US stocks moved higher on Friday rebounding from Thursday’s route. The VIX, which measures the “at the money” strike price implied volatility on the S&P 500 index eased after rallying 50% on Thursday. Most sectors in the S&P 500 index were higher, led by energy, consumer staples were the worst-performing sector in an up tape. For the week, all three major indices were underwater. This was the worst week for the S&P 500 index is 3-months. On Thursday stock prices were hammered, with the Dow losing nearly 7%. Many believe this was just froth that was taken out of the market.

US import prices came in stronger than expected, which makes two of the three inflation indices released during the week showing a stronger than the anticipated number. US consumer sentiment came out at 78.9 compared to expectations of 75. Future expectations of economic growth also increased. US treasury yields continue to remain under pressure printing a reading of 70-basis points.

A New Shutdown Has Some Concerned

Some of the issues related to the market whipsaw price action are the increase in the spread of COVID cases during the past 4-weeks. The post-Memorial Day outbreaks in states come roughly a month after stay-at-home orders were lifted. Experts urged people to continue to take the virus seriously and not take increased freedom as permission to stop wearing masks or resume gathering in large groups. But this has fallen on deaf ears. Pent up demand for social interaction has the virus spreading throughout the south and southwest.

US Import Price Rise More than Expected

The US Labor Department reported that import prices rebounded more than expected in May. Import prices rose 1.0% last month after an unrevised 2.6% drop in April. Expectations had been for import prices, which exclude tariffs, to increase by 0.6% in May.

US Stock Market Overview – Stocks Drop Sharply, Led by Energy; The VIX Surges by 49%

US stocks were hammered on Thursday as volatility surged to a fresh 3-month high. The value stocks that rallied in the last week, were the hardest hit. All sectors in the S&P 500 index were lower, led down by energy shares, consumer staples was the best performing index is a down tape. The Dow Industrials closed down 6.9%, while the S&P 500 was down 5.9%. The Nasdaq was the best performer of the major indices falling approximately 5.3%.

US wholesale prices came in stronger than expected, while jobless claims also decelerated despite declining by nearly 1.6 million claims.

The VIX volatility index was the star of the day. The index that measures the implied volatility of the  “at the money” strike prices on the S&P 500 index rallied 49% in one day, closing above 41 for the first time since mid-April as put sellers were taken to the cleaners. The surge in put-option buying accelerated the downward movement in the large-cap index.

PPI Unexpectedly Rises

US PPI came in stronger than expected to rise 0.4% last month after plunging 1.3% in April, which was the biggest decrease since the Great Recession. On a year over year basis in May, the PPI decreased 0.8%. That followed a 1.2% decrease in April, the biggest drop since November 2015. Excluding food, energy and trade services components, producer prices edged up 0.1% in May after plunging 0.9% in April,. Year over year in May, the core PPI fell 0.4%.

US Jobless Claim Rise but Continue to Decelerate

Initial claims totaled 1.54 million, compared with the 1.6 million expected and a decline by 355,000 from the previous week’s total just shy of 1.9 million. The four-week moving average fell by 286,250 to 2 million.

The Fed Meets the S&P 500 Bull

Yesterday’s Fed statement drove stock lower, but did the overnight slide tick all the boxes so far – that’s the question to ask. And why exactly did the market get so disappointed with the FOMC moves? I’ll answer these questions in today’s analysis, and lay out the prospects for the stocks ahead.

S&P 500 in the Short-Run

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

Well before going into the Fed policy statement, signs were there that the bulls aren’t at their strongest, and I took profits from the open long position off the table. Since then, the S&P 500 went largely sideways until the Fed moment came. The following spike higher attracted the bears’ interest, and stocks gave up all of their momentary gains. What exactly did the Fed say that it drove stocks that much lower in the overnight trading?

I expected them to not rock the boat – so, did they do it actually? Offering a sober assessment of the economy, they aren’t looking to raise rates any time soon, and will keep the wheels greased. No surprise here.

But there are two things hanging in the air, one of which depends on the Fed, while the other doesn’t.

I’ve written quite a few times lately about the rising Treasury yields. Rising yields translate into falling Treasury prices, and it raises the prospects of yield curve control arriving. Yield caps could indeed be coming. Quite logical if you consider that the Treasury needs to finance ever larger deficits.

When the economy expands or is expected to regain footing as is the case currently, and money flows from bonds into stocks, the S&P 500 is rising while the bond market (Treasuries) sees rising yields that translate into declining bond prices. That’s what we have seen in the runup to yesterday’s Fed.

Rising yields are a sign of belief in the recovery story, but when Powell reiterates fears of stubborn corona consequences and that he stands ready to expand the balance sheet to infinity should they rise too much, that certainly dampens the bullish spirits in stocks. And yesterday’s action in both shorter- and longer-dated Treasuries (IEI ETF, TLT ETF respectively) have shown that the market isn’t willing to bet against the Fed right now.

Against this background, paring some of the recent gains in stocks is understandable, especially when we consider the second factor that is outside of the Fed’s control.

As the riots proceed, coronavirus made a comeback into the headlines. The fears of the second wave in the U.S. are here. This is likewise working to keep the risk appetite at bay.

Are the stock bulls panicking, with prices getting ahead of themselves in their downside move?

Before answering, one more thought about low yields and stocks. Once a recessionary shock is over (not getting worse) and inflationary pressures of the moment are still low (forget about the forward-looking inflationary expectation – they’re not manifest in the real economy just yet), stock prices and bond prices tend to move hand in hand. The real economy is far from its potential output, and isn’t overheating just yet.

Tick, that’s what we’re facing right now. That’s why low yields are a good companion of a stock bull market. Remember, bonds top first, stocks next, and finally commodities. As we haven’t seen a top in Treasuries just yet, the stock bull market peak is even farther off.

As promised, let’s check now whether the stock bulls are panicking or not.

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) refused to move any lower yesterday, but by the same token, they didn’t rise either. The daily indicators are almost in unison on sell signals, so caution is warranted before calling the bonds stabilized. Needless to say, I continue to think we have still a bit more to go before seeing corporate bond prices above Friday’s highs.

This is the shape of both the above-mentioned leading credit market ratios.

The more risk-on one (HYG:SHY) is still leading the downswing, and unless it edges higher, it’s a red flag. As I wrote yesterday:

(…) The animal spirits are thus likely to get tested relatively soon, with perhaps today’s Fed monetary policy statement and conference being the catalyst. Or Friday’s inflation expectation figures could play that role.

Either way, unless credit markets recover, stocks are in the short-term danger zone.

Next, I showed you the following chart with overlaid S&P 500 prices.

The other yesterday’s thoughts are valid also today, showing that stocks are still vulnerable in the short run.

(…) Stocks are kind of hanging out there in the short run, and the degree of relative extension makes me think that the stock upswing isn’t likely to proceed with its previous momentum before taking a pause first.

What about the S&P 500 sectoral moves?

Key S&P 500 Sectors in Focus

Technology (XLK ETF) closed at new 2020 highs but gave up half of its intraday gains, while healthcare (XLV ETF) finished not too far from its Tuesday’s closing values. Financials (XLF ETF) certainly led the downswing in the S&P 500 heavyweights.

Energy (XLE ETF), materials (XLB ETF) and industrials (XLI ETF) moved sharply lower yesterday, which is not a good short-term omen for the bull run.

As pointed out in yesterday’s analysis:

(…) unless the credit markets get their act together, the short-term risks for stocks are getting skewed to the downside. That could be amplified by the USDX taking a breather after the recent sea of red.

The USD Index breather is underway as the greenback is finally making a move from its short-term lows. How vigorous that turns out to be, would put to test the stock market bull run. Remember, since the WWII ended, we’ve seen only one market rally above the 61.8% Fibonacci retracement that was followed by a plunge below the prior bear market low.

And I fully expect that the March 23 lows won’t be challenged, let alone broken.

Summary

Summing up, the Fed provided the catalyst for stocks to move down, and neither the credit markets nor the sectoral analysis show signs that this correction is already over. Smallcaps at Russell 2000 (IWM ETF) are leading the downside move, which coupled with the earlier USDX move, raises short-term risks for stocks. Even accounting for today’s premarket action, I still say short-term – the narrative of reopening optimism is only now being challenged by yet another down-to-earth Fed real economy assessment and returning coronavirus fears. The credit markets will show us how far the bulls are really willing to retreat.

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.

 

Soft Patch in S&P 500 Ahead – Or Almost Over Already?

Going from strength to strength, but isn’t a soft patch in stocks drawing near – or better yet, aren’t we entering it with today’s premarket action? The bulls have shaken off anything coming their way recently, and I continue to think it’ll turn out as a blip on the screen.

S&P 500 in the Short-Run

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

Another day with higher stock prices still. While the lower volume than during Friday’s spectacular upswing is no fly in the ointment, the extended daily indicators are one – but merely of short-term nature.

Why do I think that? Sure, the bears can force a test of the upper border of the rising red wedge – but will they be able to bring prices much back below that lastingly? Is such a reversal of fortunes on the cards right now?

Unless the Fed missteps tomorrow, that’s not likely. And I don’t really expect them to rock the boat in any meaningful way. The calls for more fiscal stimulus have been made, and the efforts towards accomplishing it are being made. The S&P 500 price action is telling us that the markets expect both parties to iron out the differences, with the end result being a stimulus bill to cheer.

That’s how I interpret the price action thus far – regardless of the premarket decline driven by weak Geman export data. Do credit markets agree that the trend of generally higher S&P 500 prices is intact?

The Credit Markets’ Point of View

High yield corporate bonds (HYG ETF) seem to be decelerating, but the breather so far took shape of a sideways move with lower bond values soundly rejected. Yesterday’s hesitation also happened on lower volume, which is consistent with what we see in a pause within a trend. In other words, the trend is up and we haven’t seen a true reversal yesterday.

Would the leading credit market ratios confirm this view?

Yesterday’s HYG consolidation is mirrored in its ratio to shorter-dated Treasuries. It’s just stocks that diverged with their upswing, sizable part of which came in the final 30 minutes before the closing bell.

While such price action is bullish (stocks want to go up, after all), it leaves them in an extended position relatively speaking. But given the HYG:SHY setback suffered so far, is that a cause for more than a very short-term concern?

Investment grade corporate bonds to longer-dated Treasuries (LQD:IEI) are unyielding in their rise. Both leading credit market metrics point to a rather limited downside in stocks that I shouldn’t really view as anything but a perfectly natural microrotation.

Both the 3-7 year Treasuries (IEI ETF) and 20+ year Treasuries (TLT ETF) recovered a bit of lost ground yesterday. Neither that, nor the USD Index pause is a game changer though. Look at gold, it’s been unwilling to sell off much so far. Will it do so in the runup to the USDX upleg? What upleg when Treasuries’ closing prices are largely giving the appearance of being ready for more downside before resuming their long-term uptrend? Will the Fed deliver a deflationary squeeze tomorrow that would take traders out of their risk-on and inflationary-hedges? I don’t think so.

That’s why the current environment of inflation picking up and money printing as far as eye can see, is fundamentally conducive to higher stock prices. Money is being created faster than it’s being destroyed. Technically, I’ve laid out the position of the credit markets – will volatility analysis enrich our view?

The VIX has moved a little higher against the backdrop of rising stocks. Given the case for limited downside potential in stocks, the favorite volatility measure supports that assessment. It’s because during bull market runs, the VIX doesn’t make sharp spikes that would make one look for much more still – instead, it’s bobbing around with a measured jump here and there amid generally falling or sideways values.

Now, VIX falling to around 6 as happened not all that long ago, that would be extreme complacency and mature stock bull market. We’re nowhere near that currently.

Does the sectoral analysis support my thesis of the stock bull market having much further to run?

Key S&P 500 Sectors in Focus

Move on, the uptrend in technology (XLK ETF) is intact whatever intraday selling it meets. With the 2020 highs within spitting distance, the only question is how much of a resistance will they provide – both in time to overcome them, and in depth of price corrections to work out the extended daily indicators’ readings before the bulls say enough is enough.

Healthcare (XLV ETF) is also getting ready to take on its February highs, and again it seems that overcoming them is merely a question of time.

Financials (XLF ETF) held onto their Monday’s gains pretty well. Don’t be deceived by the black candles – the sector still managed to keep most of its yesterday’s bullish gap intact. The daily volume shows that the sellers haven’t really stepped in with force, meaning the unfolding upswing has a solid chance of extending gains after the unfolding and in all probability shallow S&P 500 correction is over.

The stealth bull market trio has done well yesterday. Energy (XLE ETF), materials (XLB ETF) and industrials (XLI ETF) have extended opening gains, which is bullish for the stock market advance. Unless we see them making a top, this bull market has much further to run. And the bull is still very young, and the best is still ahead.

Summary

Summing up, stocks continue trading above the bearish wedge, and any downswing appears to be of temporary and rather shallow nature. The weekly and daily charts highlight the bullish outlook, and credit markets including Treasuries support the rotation into stocks with more buying power to come in from the sidelines. The sectoral performance remains conducive, and the strong showing of the early bull market trio (energy, materials and industrials) underscores that. So does the vigorous Russell 2000 (IWM ETF) performance or VIX being no cause for concern. As the dollar remains under pressure and unlikely to stage more than a reflexive short-term bounce, stocks won’t probably face a new deflationary headwind any time soon. Tomorrow’s Fed won’t likely change that, and I expect Friday’s inflation numbers to be a cherry on the cake. Coming full circle, the debt markets’ performance is the key, and the rest broadly concurs with my bullish outlook.

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 he 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.

 

US Stock Market Overview – Stocks Rally Following Unexpected Jobs Gains

US stocks moved higher on Friday following a surprise increase in US jobs. Economists had expected a very large decline and the increase took most analysts off guard. All sectors in the S&P 500 index were higher, led up by energy following a 5% plus rally in crude oil. Crude oil prices are likely to continue to rally as workers get back on the road to commute to work.

Consumer staples which are a defensive sector were the worst performing in an up tape. The Dow Industrials was the best performing major average rising more than 3%. Small caps outperformed large-cap stocks with the Russel 2000  rising more than 4%. US yields moved higher with the 10-year rising 9-basis points and finishing the week up 25-basis points.

The dollar edged slightly higher, gold prices moved lower, weighing on metals and mining shares. With the Fed continuing to provide liquidity, and Congress likely to push forward another stimulus plan, stocks should continue to benefit from a move toward riskier assets.

US Jobs Numbers Surge

The Labor Department reported that US non-farm payrolls rose by 2.5 million in May and the jobless rate declined to 13.3. This compared to expectations that the unemployment rate to rise to 19.5% from April’s 14.7% and payrolls to drop by 8.33 million. The majority of the industry’s May gains were in foodservice, which suffered the worst of the nation’s layoffs in prior months. Employers added back some 1.37 million chefs, waiters, cashiers, and other restaurant staff in May. Construction added 464,000 positions while manufacturing added 225,000. Retail trade, netted 367,000 jobs as companies across the country hired back a fraction of the workers they laid off.

One figure that was not upbeat is that the black-unemployment rate rose slightly in May despite a decline of nearly two percentage points for white workers.  White unemployment fell to 12.4% from 14.2% in April, while black unemployment rose to 16.8% from 16.7%.

US Stock Market Sets Up Technical Patterns – Pay Attention

The recent “melt-up” in the US stock market after a moderate downside price move in early May 2020 has set up a number of technical patterns that traders need to pay attention to.  This melt-up trend may continue for a bit longer, but price levels and actions are beginning to set up very clear patterns that warn of potential weakness in the future.

First, no matter how we attempt to spin the data, the US economy is very likely to fall into a moderate recession after the COVID-19 virus event has created a world-wide economic event and the recent riots and protests all across the US continue to disrupt and destroy property, businesses, and other assets.

It is almost like a one-two-three series of punches leading to a TKO.  We have the virus event, the stay-at-home orders, and now the riots and protests.  Recently, the National Guard has been called out to support local law enforcement and to protect people and properties. From our perspective, the situation is very far away from stable economic activity/growth supporting current stock price activity/levels.

We have been urging our friends and followers to be very cautious of long-side trades and to execute them with very narrow parameters, minor position sizes, and easy/tight targets and stops.  The reason for this is because we are not confident that the underlying global economic fundamentals support the current price trends and activities.  Yes, the US Fed is pouring trillions into the economy attempting to support the US and global markets, but the view from the ground level is very different from the Wall Street office on the 20th floor.

The GDP-Based Recession Indicator Index has risen to the highest levels since Q1:2008 as of April 2020 data.  If it continues higher with the May 2020 data point, we’ll have more evidence that the US economy has entered the early stages of an economic recession.  Remember, in early 2008, the US stock market had already begun to collapse more than 20% from recent highs.  Currently, the SPY is trading only -9.63% below the all-time high levels.  Our researchers continue to believe the US stock market is overvalued by at least 11% to 15% at current levels.

GDP-Based Recession Indicator Index

We continue to urge technical traders to be very cautious of the potential “washout-high” price pattern that is setting up and we continue to urge our followers to be very selective of active long trades.  There is money to be made in this trend and certain sectors and symbols have rallied 10 to 15% over the past 4+ weeks – but technical traders need to be very aware of the active risks still playing out in the markets.

This Daily YM (Dow Jones E-Mini Futures Chart), highlights the major resistance levels near current price highs.  The first, the MAGENTA line originates from our Adaptive Fibonacci Price Modeling system and is a key target/price level originating from the all-time price peak level.  The reason this level is so important is that it continues to reflect the prominent downside price move/trend and this key Fibonacci level is still active until it is breached by price moving/closing above this level.

Second, the current Adaptive Fibonacci Price modeling system trigger level is highlighted in YELLOW.  This level is going to act as a “trigger point” in price.  If price rallies above this level and closes above this level, then we may see more upward price activity over the next few days/weeks.  If price fails to close above this level and stays below this level, then we interpret this as a failure to achieve the trigger level and it would suggest that price may begin to move downward – away from this critical price trigger level.

Watch for the YM to move to levels near or above 25,600 and watch how it reacts to this key resistance level.  If it rallies above this level then fails and begins to move dramatically lower – this level is being rejected and a new bearish trend may setup.  If it moves above this level and closes above this level, then we have confirmation of a potential upside price trend and bullish trending may continue for a bit longer.

DOW JONES E-MINI FUTURES DAILY CHART

This next Weekly chart, the IWM (Ishares Russell 2000 ETF), highlights another key technical pattern – a Gap Fill.  We’ve been watching how capital has transitioned from the NASDAQ and S&P500 and into the Mid-Caps and other sectors over the past 4+ weeks.  Once the major indexes began to reach levels near the past all-time highs, capital began seeking out undervalued sectors and technical traders began rotating into these sectors expecting a moderate price rally to occur.

Not that the Russell 2000 has rallied up to fill this gap, it is very likely that some level of moderate price weakness will setup – possibly pushing price levels lower.  A Gap Fill is a technical pattern that suggests any Gap in price will eventually get filled by future price activity.  Once this Gap is Filled, the price has completed a technical pattern to “fill the void”.  After the Gap is filled, price usually stalls and moves in the opposite direction for a period of time – establishing a new base for a new momentum move.

We believe the filling of the GAP on this IWM chart suggests the Mid-Caps may have reached a key resistance level and may begin to move downward in the near future – likely attempting to establish a new momentum base near the $122 level.

IWM – ISHARES RUSSELL 2000 ETF WEEKLY CHART

We love this market volatility and how various sectors are rotating right now.  It presents incredible opportunities to be able to select new trades.  We are still being very cautious overall with our portfolio.  We’ve been able to achieve new highs in our accounts by selectively trading various symbols and targeting exit points using our proprietary trading technology.  Right now, we have two active trades that continue to generate solid profits.  No reason to go crazy trying to pick dozens of trades with our “Best Asset Now” modeling system.  It allows us to attempt to stay active while trading the best asset class in the markets.

Watch how the markets react this week and early next week.  We recently posted a research article about the US Presidential cycle and how June/July is often very difficult months in an election year.  You may find this research article very informative as we push forward into the Summer months of this 2020 election hear

Election Year Cycles – What To Expect?: https://www.fxempire.com/forecasts/article/election-year-cycles-what-to-expect-652736

I hope you found this informative, and if you would like to get a pre-market video every day before the opening bell, along with my trade alerts. These simple to follow ETF swing trades have our trading accounts sitting at new high water marks yet again this week, not many traders can say that this year. Visit my Active ETF Trading Newsletter.

If you have any type of retirement account and are looking for signals when to own equities, bonds, or cash, be sure to become a member of my Long-Term Investing Signals which we issued a new signal for subscribers.

Ride my coattails as I navigate these financial markets and build wealth while others lose nearly everything they own during the next financial crisis.

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

Chris Vermeulen
Chief Market Strategies
Founder of Technical Traders Ltd.

 

US Stock Market Overview – Stock Rally Led by Energy; the VIX continues to Fall

US stocks moved higher on Tuesday, driven by value shares as growth stocks took a small breather. Most sectors in the S&P 500 index were higher, led by energy and materials, Communications were the worst-performing sector. The VIX volatility index, which measures the “at the money” strike prices on the S&P 500 index fell below 28 for the first time since mid-February. This is nearly 80% higher than the average for the VIX during 2019.

The Atlanta Fed GDPNow forecast now shows that Q2 GDP is forecast to decline by 52.8%. The White House is focusing on a relief package that would encourage people to go back to work. Apple’s mobility is showing that traffic in the United States is accelerating. There appears to be a lot of pent up demand that could accelerate economic growth once restrictions are lifted.

The White House Wants a Customized Stimulus Bill

The White House team has assembled a set of stimulus proposals meant to encourage the public to return to work and resume normal life, including going out to restaurants and taking vacations, geared jump-start the ailing economy as quickly as possible. The goal is to show that growth is returning to normal and that the President is the person to lead the economy back.

Q2 GDP is Expected to Tumble

The Atlanta Fed GDPNow outlook is now showing a 52.8% in growth. That follows data from the Institute for Supply Manufacturing showed just 43.1% of firms seeing an expansion in May. The Atlanta Fed anticipates personal consumption expenditures, which make up 68% of the nation’s gross domestic product, to fall 58.1% in the Q2.

Gross private domestic investment, which accounts for 17% of GDP, is now projected to slide 62.6%. The New York Fed’s GDP Nowcast, estimates a 35.5% Q2 drop, while CNBC’s Rapid Update survey of leading economists has a median 38% decline.

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

Why I Am Turning Cautious About Yesterday’s Stock Upswing

When it comes to closing prices, stocks entered the month of June on a strong note, but the daily volume wasn’t exactly convincing. While many signs though continue to be arrayed behind the slow grind higher, first swallows of short-term non-confirmation are appearing. Which way will they resolve? And what’s the upside potential of the stock rally in short run anyway?

S&P 500 in the Short-Run

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

Prices are grinding slowly higher without too much of a downside, but on the second lowest volume in last two months. As a minimum, that calls for caution – regardless of the fact that lower daily volume on similarly lazy days during bull market runs is no reason for concern, but this one is suspiciously low. This means that the market is pausing, and looking for short-term direction.

Should it break higher from here, and leave the further detailed non-confirmations unresolved, that would be concerning for the short-term prospects of the bull market. With the early March highs at 3137, the upside potential isn’t huge – it’s roughly the same as any temporary drop below 3000. That’s not what I would call either a high-odds setup to reach those highs, or a favorable risk-reward ratio.

Yes, the monthly price action is bullish, and the weekly one is probing a key resistance (the yesterday-discussed lower border of the rising medium-term channel on the weekly chart), but I think it’s a matter of relatively short time when the sellers test the buyers’ resolve here.

After a plunge that gains momentum and doesn’t fizzle out within a few hours or less, we would be presented with another opportune setup. Of course, other conditions would have to met simultaneously to tip the odds in our favor some more.

How did the credit markets support yesterday’s stock upswing exactly?

The Credit Markets’ Point of View

Despite struggling in the roughly first third of the session, high yield corporate bonds (HYG ETF) made a staircase climb higher, closing sharply up. As the move happened on high volume, it has bullish implications for this key ETF. The cause for concern however, was that stocks lagged relatively during the day, as can be seen in the following chart.

Since the early April $2.3T bombshell was digested, stocks have been leading higher. This is what the high yield corporate bonds to short-term Treasuries ratio (HYG:SHY) with the overlaid S&P 500 prices (black line) shows.

Thanks to the spurt higher in the HYG ETF, that might be resolved with a premarket stock upswing that the S&P 500 keeps intact till the closing bell, or stocks might start to lag in the short-term. Of course, this dynamic might take more than a few sessions to kick in, but given the ratio’s extended indicator readings, it’s a very valid scenario.

While both the index itself, and the S&P 500 to Treasuries ratio have overcome their April highs, the short-term swallow of stock underperformance is clear. Despite stocks moving higher, their ratio to Treasuries hasn’t made a new high. That’s a short-term sign for caution, and of clouds on the horizons that the bond market sees.

At the same time though, the stock bull run remains intact regardless of whatever short-term hiccups it’s going to run into over the coming days and weeks. That’s the essence of my call for a not-so-smooth sailing over the summer months.

Key S&P 500 Sectors in Focus

As said in yesterday’s intraday Stock Trading Alert, technology (XLK ETF) hasn’t been exactly leading higher on the day. Apart from a sideways consolidation, yesterday didn’t bring anything new to the table.

Healthcare (XLV ETF) performed more constructively, but the buyers had to defend the daily lows several times. The sector closed around the mid-point of its daily range, which is quite positive for the buyers. Such price action appears to be a consolidation of recent gains, and it’s encouraging that it didn’t happen on higher volume.

The price action in financials (XLF ETF) wasn’t as bullish yesterday. As they are not too close to their recent highs, the lower volume has neutral-to-bearish implications for the sector in the short run. That’s true despite my call for the sector to muddle through with a bullish bias in the medium-term.

Another short-term watchout are the leading ratios, as they haven’t yet recovered from last week’s setback. Both financials to utilities (XLF:XLU) and consumer discretionaries to staples (XLY:XLP) are pointing in the short-term direction of the amber light.

Out of the stealth bull market trio, materials (XLB ETF) performed best. Energy (XLE ETF) outperformed industrials (XLI ETF), and the overall impression of these three sectors is one of a slow grind higher in the weeks to come.

So, what other argument can be made in favor of short-term caution?

After the late-May steep rise in small caps, the Russell 2000 (IWM ETF) is taking a breather now. And earlier in April and May, that has resulted in a sharper temporary downswing than what we’ve seen so far.

That’s why I think it’s reasonable to let the non-confirmations work themselves out these days. There will always be opportunities in the markets, long or short, and it’s key to be picky and act on only the strongest setups.

One more piece to the puzzle. On a short-term note from the currency markets, the USD Index appears oversold and ready for a bounce any day now. Tomorrow’s ADP Non-Farm Payrolls could provide catalyst for this reversal of fortunes. And we know what kind of a stock move a risk-off environment brings…

Such were my parting pre-summary thoughts yesterday:

(…) after the March deflationary episode, the market is sensing inflation on the way… Remember, bonds peak first, then stocks, and finally commodities. And we haven’t seen the peak in bonds yet, let alone in stocks.

From the Readers’ Mailbag

Q: At what point does reality set in for this rally? Is it the start of a new bull market or a bull trend in a bear market?

A: I’m of the opinion that we’re in a bull market. After all, the post-WWII stock bear market was the only instance when the S&P 500 made new lows after beating the 61.8% Fibonacci retracement. Given the extraordinary monetary and fiscal stimulus, it’s highly unlikely to the point of unimaginable that we would make new lows, let alone retest the existing ones.

I think that this fast and sharp bear market is history, and after a sideways-to-down trading range over much of summer, this fact will become increasingly apparent both for the investment public and professionals. Look at the retail participation – it’s still relatively slim, though money is increasingly coming out of the bond funds. Similarly to the run from the March 2009 lows, it has (generously speaking) taken the public till 2012 to come out of the bunker in droves and increase their stock allocation. There are few professionals that call for taking on the February highs before the year’s end, and I think we have a pretty good chance to actually overcome them still this year. But we’ll see and I’ll keep you updated as we go.

Summary

Summing up, while yesterday’s upswing ticks many a stock bull’s boxes, it doesn’t do the trick for several key ones. On one hand, the performance of the high yield corporate bonds is the strongest bullish factor, while the relatively limited upside potential, low daily volume coupled with extended daily indicators, and underperformance of the stocks to Treasuries ratio are the key short-term watchouts. So is the Russell 2000 lagging over the last few sessions, or the lagging leading indicators (financials to utilities, and consumer discretionaries to staples). As we’re in a bull market, the balance of risks in the medium-term remains skewed to the upside, but I’m striking a bit cautious tone for the very short-term.

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.

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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 he 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.