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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
Stocks have had a great run over the past seven trading days, after a double bottom chart formation provided a launching pad, and with a little bit of good economic news sprinkled in at opportune moments along with a patriotic Fourth of July holiday. The ADP Employment Report, initial jobless claims and continuing claims all come out on Thursday, and then the June Employment Situation and non-farm payrolls on Friday. We’ll see if it turns this into something more than just an oversold bounce.
The bulls have found strong breadth and leadership in all the right places, as Technology, Industrials, Basic Materials, Energy, Consumer Discretionary, and even Financials have been taking turns leading the way throughout this 7-day run. We still have all the same goblins out there threatening to derail the market rally, but bulls appear to be undeterred by such pesky details. After all, where else is an investor to go these days?
QE2 ended without much fanfare, and while there won’t be any more injections of freshly minted bills into the system, the dollars that already have been injected will be allowed to keep circulating for the foreseeable future. The dollar itself seems to have settled into a narrow trading range at current levels, and stock investors seem to be okay with that. But if the dollar strengthens considerably, such as due to renewed debt woes in Europe, that likely won’t bode well for a continued stock rally.
Since the beginning of June, the Dow has lost/recaptured/lost/recaptured the 12,000 level, and the Russell 2000 has lost/recaptured/lost/recaptured the 800 level. However, the S&P 500 couldn’t recapture the 1300 level earlier in June, which may have pulled the whole market down with it. But last Wednesday, it broke through with conviction, allowing the overall market to rally. If the employment reports aren’t too depressing, it might take a run at the year’s highs.
Looking at the SPY chart, the 200-day moving average provided support for a double bottom and a nice bounce point. History shows that after riding along the lower Bollinger Band, price tends to make its way back up to the top band, which it has done. In fact, Friday took it well above the upper band, and now the market is waiting…
