— by George Leong, B. Comm.
Stocks are sure doing their best to extend the current mini-rally that began a few weeks ago after the break below the breakout levels. I’m impressed with the buying, but remain cautious towards the sustainability of the gains. Investor sentiment is bullish in both the broader market and technology.
After last week’s rally, the major stock market indices are continuing to edge upwards towards new 52-week highs. The DOW closed higher in nine of the last 10 sessions. In the process, the DOW broke 9,000 on Thursday. Technology and growth stocks also remain strong, with the NASDAQ above 1,900 and eyeing 2,000, a level not seen since October 3, 2008. Small-caps are also in a nice rally.
The current buying is positive, but what I feel was the key was the ability of the markets to avoid major selling after the recent break below the breakout levels. There are clearly investors and traders willing to buy on market dips and this is positive for stocks.
Markets continue to look impressive. The overall bias is positive. Investor sentiment on the NYSE has been bullish in 68 of 71 sessions going back to April 9. The readings suggest a bullish bias that could drive stocks higher or at least hold on to gains. Investor sentiment on the NASDAQ has been bullish for seven straight sessions and 49 of 71 sessions. The trend is positive for both the NASDAQ and NYSE.
In all, the technical picture is bullish, with rising Relative Strength, but watch the overbought condition.
For the NASDAQ, the near-term technical picture is bullish with strong Relative Strength, which could signal more gains ahead.
Market breadth as indicated by the advance-decline line (A/D) is strong, with seven of the last 10 sessions above 1.0. The near-term trend is negative, a reflection of the uncertainty in the markets.
The NASDAQ is eyeing 1,900 and is above its 20-day moving average (MA) of 1,836 along with its 50-day MA of 1,803. The index is above its 200-day MA of 1,619. The recent top was broken on the chart. The index is extremely overbought, so watch for some selling pressure.
With the DOW, on the blue chip side, the near-term technical picture is moderately bullish, with strong Relative Strength. The recent top was broken on the chart.
The DOW broke 9,000 and looks good above its 20-day and 200-day moving averages. The target is 9,202 and 9,806. The index is extremely overbought, so watch for some selling pressure.
The broadly based S&P 500 is moderately bullish, with strong Relative Strength. The recent top was broken on the chart.
The S&P 500 is approaching 1,000 and is above its 20-day and 50- day moving averages. The target is 1,000. The index is extremely overbought, so watch for some selling pressure.
The Russell 2000 is bullish, with strong Relative Strength. The chart shows a multiple top. The index is above 500 and its 20-day MA average of 507. The near-term target is 561. The index is extremely overbought, so watch for some selling pressure.
Watch to see if gains are sustainable this week, as I believe that there will be increased selling pressure. Watch for more earnings and economic data.