Stocks May Have More Big Gains Ahead As Amazon Breaks Out

S&P 500 (SPY)

Stocks finished the day higher with the S&P 500 climbing by nearly 40 basis point to 2,833. At this point, there is very standing in the way between the S&P 500 and its eventual rise to 2,875. In fact, at this point, we aren’t even talking about a 2% move.

S&P 500, spx

Russell (IWM)

The Russell had a perfect day closing above key resistance at 1,563. The chart still appears to be bullish, and I would not be surprised to see the index trading above 1,592 soon.

russell,

Further to Go

I know I have said this over and over again, but the S&P 500 is simple trading at a valuation that is too low.  It is currently trading at just about 15 times 2020 earnings, and estimates would have to fall a lot to get the S&P 500 back to a historical average one-year forward PE of 17.7. At its current value of 2,833, the S&P earnings estimates for 2020 would need to fall too by roughly 15% to $160.06 to have the PE rise that high. Now I’m not saying that can’t happen, but there would need to be a recession to trigger that kind of decline in earnings growth, and at this point, I don’t see that happening.

PE ratio

Yields To Fall More

10-year yields appear as if they are going to take another leg lower and fall to around 2.54%.

yields

Declining yields is not a function of anything more than the spreads between US and International bonds being very wide. The spread between US bonds and Germans Bunds are near historic highs and is now contracting.

us 10 year minus german

How many people thought I was crazy when in my ten predictions for 2019 I said 10-year yields would drop to 2.3%. Doesn’t seem so crazy now? Oh, and by the way, I wrote on that prediction on December 10. I also wrote on December 1 that the Fed would not raise interest in 2019.

Amazon (AMZN)

Moving on Amazon continues its rise, and the big test will come at $1,770. Should the stock rise above that level the next area of resistance comes around $1,850. But notice how the RSI is now breaking out of the downtrend. It would suggest to me that the stock continues up and through $1,770.

1 2
View single page >> |

Disclosure: Michael Kramer and owns SPY Calls

Disclaimer: This article is my opinion and expresses my views. Those views can change at a moment's notice when the market changes. I am not ...

more
How did you like this article? Let us know so we can better customize your reading experience. Users' ratings are only visible to themselves.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.