The bulls are in control, but you have to wonder how long it will last. The DOW recorded its third straight session of triple-digit gains on Monday and, in the process, rallied above 10,500 on a broad market rally. More importantly, the S&P 500 also closed above its 200-day moving average (MA) after recently managing to hold above the critical 1,040 level, which was a key development.
With the gains, all of the four key indices are trading in positive territory on the year, quite a reversal from just recently when the Russell 2000 was in a technical bear market, but is now down only 10.74% from its 52-week high. All four of the key stock indices have rallied above the 50-day and 200-day MAs — a bullish sign. Now we will see if the gains are sustainable. The market will need to see continued strong earnings and economic news to hold and advance higher. I expect some profit-taking given the overbought condition and hesitant Relative Strength, and based on the recent trading pattern.
As far as investor sentiment is determined by the new-high/new-low ratio (NHNL). The trend of the NYSE NHNL had been edging higher, with 13 straight sessions bullish from June 10 to June 28, prior to a dip to neutral, but 12 of the last 13 sessions were bullish. The near-term trend is positive. In the technology area, investor sentiment on the NASDAQ has been edging lower, with only 13 bullish readings since May 6, but the last two sessions were bullish.
The near-term technical picture is moderately bullish on above average Relative Strength (RS), so there could be additional upside moves in the near term.
The NASDAQ is eyeing 2,300 and is above its 50-day MA of 2,228 and its 200-day MA of 2,260. Be careful, as the 50-day MA remains below the 200-day MA, but it has been edging higher. Watch to see if the index can hold, as the downward channel appears to be in place. The index is overbought, so watch for some near-term selling pressure.
The near-term technical picture for the DOW is moderately bullish with above average RS, so there could be additional upside moves in the near term. The DOW is above both its 50-day MA of 10,181 and 200-day MA of 10,402. Be careful, as the 50-day MA is below its 200-day MA. The index is overbought. There is a bottom at around 9,800 on the chart.
In the broader market, the near-term technical signal for the S&P 500 is moderately bullish, with above average RS, so there could be additional upside moves in the near term. The S&P 500 held above the key 1,040 level, and it has rallied above its 50-day and 200-day MAs of 1,083 and 1,113, respectively. There is key support around 1,040 on the chart. Be careful, as the 50-day MA is below its 200-day MA. The index is overbought.
The near-term picture for the Russell 2000 is moderately bullish on above-average RS, so the index could see more upside moves. The index trades with the economy. The index is above its 200-day MA of 639 as well as its 50-day MA of 639. The index is overbought. Watch for key support at 600.
Yet it’s not clear sailing by any means. Be careful, as the price trends on the indices are down and, unless there is a steady upside move, the trend will remain intact with additional downside moves going forward.