My sense, therefore, is that the S&P 500 (SPX/1343.80) spends the next five to seven sessions vacillating between 1320 and 1350 until the equity markets’ internal energy is rebuilt for a move higher. Last week I suggested the SPX was extremely overbought based on a number of finger to wallet ratios and the 1340 – 1346 might contain the rally for awhile. Thursday’s perky ADP numbers allowed the SPX to better that level with a close of ~1353. However, Friday’s figures erased the Thursday thrust, as well as partially correcting some of the overbought condition. Consistent with these thoughts, I would continue to accumulate favorably rated stocks, many of which have been mentioned in these reports.
The call for this week: After three 90% Downside Days in June, July 1st registered a 90% Upside Day. That Upside Day was accompanied by a surge in Demand, as well as the steady increase in Demand that preceded it. Additionally, the New York Composite Advance/Decline Line is at a new rally high, implying the advance has been broad based. Then there is the D-J Transportation Average (TRAN/5548.66) that has traded to new all-time highs, registering one half of a Dow Theory “buy signal.” If the D-J Industrials (INDU/12657.20) march to a new reaction high above 12810.54 a full signal will be registered. All of this provides evidence that another rally leg appears to have begun. Clearly, I think the recent soft economic numbers are driven by one-off events like the weird weather, a 44% increase in gasoline prices, and the tragedy in Japan. Expanding on this, our friends at Bespoke offer the attendant charts comparing the 1995 Kobe earthquake with Fukushima. So, my sense is that the SPX will spend a few sessions oscillating between 1320 and 1350 until the equity markets’ internal energy is rebuilt for a move higher.
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Copyright © Raymond James
