Technically Speaking: The "Sellable Rally" Chart Review

Over the past couple of weeks, we have been discussing a “sellable rally” following the sell-off during the month of May. To wit:

This week we are going to look at the recent sell-off and the potential for a short-term ‘sellable’ rally to rebalance portfolio risks into.

The markets only need some mildly positive news at this point to spur a ‘short-covering’ rally. I would encourage you to use it to reduce risk, rebalance holdings, and raise cash until the ‘trade war smoke’ clears.

The market did indeed rally last week. While the initial sell-off in the market was attributed to potential tariffs on Mexico, which were indefinitely suspended on Friday, the real reason was the dismal employment report of just 75,000 jobs.”

As I said, there was more room to go on the upside, and yesterday the market continued its rally to start the week.

“In the very short-term the markets are oversold on many different measures. This is an ideal setup for a reflexive rally back to overhead resistance. The markets have only reversed about half of the previously oversold condition which leaves some ‘fuel in the tank’ for a continuation of the rally this coming week.”

 

But here is the real question for this week:

Is it still just a “sellable rally” or “is the bull market back?”

That’s the answer we all want to know.

Each week on RIA PRO we provide an update on all of the major markets for trading purposes.

 

  • Last week we noted that SPY had corrected the overbought condition and is testing the 200-dma.
  • The “buy” signal in the lower panel was massively extended, as noted several weeks ago, which as we stated, suggested the reversal we have seen was coming. The signal is almost fully reversed.
  • As stated last time:
    • “The correction last week has set up a tradeable opportunity into June.”
  • That tradeable rally is in process and we are approaching our initial target of $290
  • Short-Term Positioning: Bullish
    • Last Week: Hold full position with a target of $290.
    • This Week: Sell 1/2 of position on any rally next week that hits our target.
    • Stop-loss moved up to $280

 

On Monday, our initial target was hit which, for traders, suggests trimming positions and reaping some decent short-term profits. However, the current momentum of the rally does suggest the rally could be sustained through the end of the month with previous highs attainable.

With the markets back to very overbought levels, as noted above, there are reasons to remain cautious as there are signs the current rally is likely not sustainable longer-term.

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(See an unlocked version here. We also do the same analysis for each S&P ...

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