General Stock Market Commentary - Saturday, July 11
The Short-Term Trend
A short-term uptrend started on July 6. It's not the strongest or broadest trend, but the market is moving higher short-term. The charts that follow show a mixed picture.
The SPX is forming a handle and looks ready to move.
I know the statistics are bad related to the number of people catching the virus, but this setup looks really good and there could be a healthy breakout. Maybe market participants are more focused on some of the good news regarding coronavirus-related research.
This SPX PMO momentum indicator hasn't turned up yet, so there is still a bit of risk that this short-term uptrend for the broader market is a fake. To me, this indicator looks like a sideways consolidation has taken place and that it isn't quite ready to make a move up or down.
From this chart, it is difficult to see a new uptrend, although the stochastic is moving nicely upwards off its lows. This is another good-looking bullish setup, although I said the same thing last week.
The ten-day call/put ratio has turned higher, confirming the uptrend. In the short-term, this chart looks good. Longer-term, there is an issue. More on this later.
This small-cap, high-earnings, growth-stock-ETF powered through the February gap-down like it was nothing.
The chart of this ETF is a line in the sand. While the ETF price is moving upwards above the uptrend line, I would judge the general market to also be in an uptrend.
The ETF is facing its former high, while also being just a bit extended from its 20-day average. It's another opportunity to meet some resistance, so I am thinking we may get another short period of sector rotation.
One chart that is definitely not confirming the current uptrend is the bullish percents, which are pointing lower and are below their moving averages. If we do get sector rotation, then maybe after a couple of strong days for cyclical stocks, this chart could start to shoot higher. But at the moment, this tells me that the uptrend is led by a narrow group of stocks, although we already knew that.
New 52-week lows are at levels where the risk of a significant market selloff is low, however, I'm still nervous about it.
I need to keep an open mind about this market because anything can happen, as suggested by the late-day market strength on Friday, July 10, which really surprised me. Maybe there were a lot of shorts who had to cover going into the weekend, and that caused the rally.
I've sold half of each of my positions in the cloud/software stocks, which are just so extended. And I took some profits in the gold miners, as well. So now I have cash while the short-term trend is moving higher, which is usually a good thing. However, these charts are so mixed that I'm not sure what I am going to do.
The Longer-Term Outlook
After a huge run up for the M2 money supply, it may be leveling off. So much money pumped into the economy will find its way into stocks, not to mention the positive impact on economic growth. M2 growth also favors gold and gold miner stocks.
So, the question is whether the economy and stocks need this M2 growth to continue in order to sustain the markets, or whether this is enough for now with the positive impact lasting for the months ahead.
The ECRI index has been moving higher off its lows, but this week's move shows that it may be time for it to advance at a more realistic pace.
While this index is under the -5 level, I assume an economic recession persists. Stocks can rally in a recession, but the rally can't be sustained unless the economy moves into expansion.
Usually, when the economy moves from recession to expansion, the small caps will lead. That is not happening now. The small-cap underperformance is just getting worse.
This is a very worrisome medium-term chart, originally from Martin Pring. The ten-day equity put/call is well into a level that works against stocks from contrarian sentiment point-of-view.
What to do? I'm not sure. I don't like having cash while the market is rallying, obviously. It burns a hole in my pocket and I end up doing something stupid. So, we'll see. More later.
Outlook Summary
- The medium-term trend is down as of February 26.
- The short-term trend is up as of July 8.
- The economy is in recession as of March 28.
- Contrarian Sentiment favors uncertainty as of June 6.
- The medium-term trend for Treasury bonds is up as of January 25 (prices higher, yields lower).
Disclaimer: I am not a registered investment adviser. My comments above reflect my view of the market, and what I am doing with my accounts. The analysis is not a recommendation to buy, ...
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