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Courtesy of Scott Martindale, Senior Managing Director, Sabrient
The dollar weakened further today for the third day in a row with the Greek austerity vote giving some support to the Euro, which gave stocks the green light to move up for a third straight day. As I’ve discussed often in this column, stocks have depended upon a weak dollar, particularly those in the Energy and Basic Materials sectors, which were leaders again today. The market is up about 3% so far this week. But the big mover today was Financials, up 2.3%.
I have been saying that the bulls need leadership from Technology and Financial if they are to maintain some traction, and consumer stocks, as well. Well, Monday was a big day for Tech and today it was Financial. Perhaps counter-intuitively, the onerous settlement announcement from Bank of America (BAC) may have been a catalyst. Yesterday, Energy was the leader, and consumer retailers got a boost from Nike’s (NKE) blow-out earnings report and 10% gain on the day. (Note: Sabrient’s quantitative ratings algorithm moved NKE from a Hold to a Buy last week.) Last week, Tech showed a glimmer of strength, and this week it has provided some follow-through.
The global economy remains strong, with some countries like China actually trying to rein in growth, and most of the companies in the S&P 500 earn much of their profits overseas in the stronger local currencies. However, let’s not forget about the Federal debt ceiling, which must be addressed one way or another by August 2.
On Monday, the Dow and Russell 2000 recaptured the 12,000 and 800 levels, respectively. However, the S&P 500 was continuing to struggle with very tough resistance at 1300. I suggested that bulls would likely take another run at it, and indeed they finally broke through today.
Let’s look at the SPY chart. In last week’s column, I said that I was seeing several signs of bullish divergences that were quite encouraging. As it turned out, the 200-day moving average provided support for a double bounce, and as I predicted, price is rapidly making its way back up to the upper Bollinger Band. MACD and RSI appear to be holding their bullish crossovers. The 130 level for SPY was the first level of resistance, and price broke through today,…
