Market OverviewYTD Performance S&P 500 Pacing
The end of the month and the quarter…
As June comes to an end today, the markets are setting a new historical record. Last month we closed at 1923. We are likely to close above the 1960 level today. The strong trend that we’ve seen unfold over the last four months after the first quarter decline has been impressive, even though it’s done so on relatively low volatility and low volume. As I have discussed many times in the past, low volume rallies have a tendency to continue much further than most market participants believe it can. This sets the tone for the old adage of climbing the wall of worry but also keeps the rally sustainable. Excess volume and volatility tends to come around turning points in the market whether they be up or down.
As I have discussed many times on our Market Thunder Internet show, the longer-term trends continue to be in an expansion phase and are not showing any possibilities of a top at this time. Also, the fact that over the past five weeks we have seen the bullish percent move up into 69% suggest that a new rotation in the database is occurring. This type of action also suggests that there is another 4 to 6 months minimum in this rally before it will fizzle out.
With this week being a holiday shortened week, we will see all the focus on Wednesday and Thursday as the ADP employment report is released as well as unemployment numbers coming out on Friday. The ADP report on Wednesday is expected to show 231,000 new jobs while unemployment is expected to be unchanged at 6.3% and new jobs created at 211,000. While most market participants at this time are continuing to be skittish about the trend there are many new elements coming to the market suggesting that this nervousness is unwarranted.
Many folks in the marketplace operate on hope and fear. Neither one of those are very good strategies. This is why being involved with a trend following systems such as VPM brings in some real perspective, especially one where following over 18,300 financial items in our database recognizing trends from a quantitative basis. This gives a true perspective of the dynamics of the market rotation that is going on. With this week’s orders only showing a net buying of 82 symbols, there is not a lot of rotation to look at from this week but certainly from last week there was a substantial amount of orders to evaluate. Also, as I’ve discussed before there continues to be a substantial flow into bonds despite the expectation for higher yields. The treasuries moved into the 2.65 resistance area only to retrace back to the 2.53% level by the end of the week. There seems to be little fear of higher yields at this time even in the light of the inflation commentary that seems to be starting to emerge in the background. However, there is not any material items which to affect the cash flow in the bonds at this time. I expect this market to continue to stay below the 2.65 level for the next couple weeks.
SP 500 for the week of 06/16/2014
Looking back on last week
The action began on a slightly lower note after seeing a stronger session on Friday. The lack of follow-through continued throughout the session. The market traded in a sideways pattern and was mostly negative for the session until the last hour. It was then that the S&P 500 recovered to close down -0.01%. There was very little to report on Monday. The volume remained low as well as all of the indices traded in a flat line.
The market opened on a stronger tone as it rallied to the session highs early on. Selling came in midsession to push the S&P lower and close down 0.64%. The NASDAQ was down only 0.4% on the session. Consumer confidence came in at the highest reading since 2008 at 85.2, helping the discretionary sector briefly. But it also faded at the end of the session to close down 0.2%. The homebuilders led the way up as the US Home construction ETF advanced 0.9%.
While the market began on a flat note, a steady rally unfolded as the session progressed. The S&P was able to finish up 0.49%. This was in spite of the announcement that the GDP was revised down to -2.9% from -1.0%. While this would appear to be a negative event, the markets shrugged it off as it continued to rally after this release. May durable orders also surprised to the downside and this was additionally shrugged off as well as the market participants focused on the Fed’s dovish stance.
The market sold off early in the session but then staged yet another rebound as the losses were cut to 0.12% for the S&P by the end of the day. The market reached its lows for the session in the first 30 minutes and never looked back after that. The big news for the day was that the Atty. Gen. announced fraud charges against Barclays. This is a continuation of the attack on the banking system by the regulators even though it would appear they are about seven years too late. This appears to be their efforts to get back many of the bailout dollars. In spite of this, the market was able to shrug off negative news once again.
All of the major averages ended on a stronger note on Friday as the final hour rally sent the indices to new session highs. The S&P 500 added 0.19%, narrowing the loss on the week to -0.1% while the NASDAQ was able to continue to lead the way with a 0.4% gain to bring the weekly advance to 0.7%. Overall, the indices continue to take turns on leadership over the last two weeks. But generally speaking, the large cap S&P 500 index continues to lead the way up. In the end of the session only three sectors were in a negative territory with energy, healthcare and materials down roughly 0.4%.
S&P 500 for 06/27/14
S&P 500 for 06/27/14
Friday’s action traded in a consolidation range for most of the session with the last hour seeing strength to push the S&P into new session highs. The configuration suggests that the market will need to break above the 1967.25 level to signal higher prices. As I have discussed over the past two weeks, the current short-term target is 1973/1989. There is a 60% probability that we will reach this zone this week. The critical level on the downside will be the 1948.35 level. A penetration would suggest a further decline. There is only a 30% probability for this level to be penetrated today.
The intermediate charts continue to show that the trend is strong but some of the upward momentum has dissipated over the past week’s action. Overall, the trend continues to show an expansion confirming that the market is likely to meet the objectives of 1973/1989 for this week. If the market penetrates the 1967.25 level by Tuesday we will see acceleration into this upper zone.
Today being a monthly close the action will represent yet another historic close. This represents the fifth month of the reversal rally that started back in February. This pattern suggests that if we are able to close over 1954.20 today that the market will likely continue to move higher for at least three more months.
With the VPM database now at 69.27% bullish, there is only 21% of the expected gains on the average position completed. This suggests there’s a substantial more to the upside over the next 4 to 6 months.
The market should open flat to lower, with a 60 percent probability to close higher, should the market remain above the 1954.65 level today.
This Week’s Key Levels
|Prior Close||1960.96 -1.91|
Today’s Key Levels
|Prior Close||1960.96 +3.74|