— by George Leong, B. Comm.
Here we are, with about three weeks left until the midpoint of the year. After a poor start, it has been an excellent ride since the March test of the bottom. The rally has been steady and managed to avoid any major sell-off in that time. The major market indices have advanced in four straight sessions prior to moderate selling on Wednesday. In the process, there were several key technical breaks including the NASDAQ at 1,800 and the DOW at 8,700 on extremely strong market breadth and bullish investor sentiment. Over the last month, we have seen bullish investor sentiment carry the markets higher and hold.
The technology sector continues to be the market driver in 2009. After being down over 10% earlier this year, the NASDAQ is currently up 16% and easily outperforming the S&P 500 and Russell 2000. We remain positive on technology stocks because of their innovations.
As of June 4, about 69% of all U.S. stocks are above the 200-day moving average, up from 57% a week earlier and from 47% a month ago. The same goes for the shorter-term moving averages. For the market sentiment to improve, we need to see the moving average continuing to trend higher
Trading volume has been on the rise, indicating increased interest in stocks and cash waiting to come in. There is lots of cash on the sidelines that is beginning to filter into the market.
Clearly, it seems more likely that the bottom was in March. The
economic condition, while still struggling, has been showing some positive signs over the past month, as stimulus money filters through the economy and borrowing rates continue at historical lows of 0% to 0.25%.
Yet, as stocks continue to rise, look for some selling pressure due to overbought conditions. In fact, given the winning streak, it is not unexpected that we’ll see some profit taking.
The CRB Spot Index, a measure of 22 commodities, is continuing to trend higher at around 260. The CRB is indicating that the U.S. and global economies are setting up for a turnaround, as the basket of key commodities is showing some signs of turning up. Gold continues to eye $1,000, while oil is coming off a bit from $70.00.
For the time being, I advise riding the upward wave as long as the key breakout levels are held. But, along the way, you may want to take some profits off the table, which is a good portfolio
There is plenty of cash on the sidelines waiting for some early signs of a market turn. Once that happens, there will be a lot of money to be made. We have seen markets surge following bear markets. Now, I’m not 100% sure if the current rally is a bear market rally or the start of a new bull market, but it does hold promise and could advance higher. Yet, also keep in mind that markets can reverse. Should this happen, take the dips as buying opportunities to accumulate stock. You’ll need a list of stocks you like and you must be ready to pounce quickly.