We are at the mid-point of the year. The year started with a bang, but reversed course in May and early June, with stocks trending down on rising global risk.
At the mid-year, the key indices are up between four and seven percent in the first half, with hopes for a better second half, albeit the global market risk continues to be high.
I’m impressed, but, at the same time, surprised about the current rally. The DOW is up another 150 points intraday on Thursday and looking to extend the winning streak to four days. It would be the third time over the last four sessions that the DOW closed up over 100 points.
The resolution in Greece continues to be the catalyst for the buying.
Stocks closed lower in nine of 12 sessions from June 1 to June 15, but since then, stocks have rallied in eight of 11 sessions to June 30.
A key chart development was the upward moves of the key indices to above their respective 50-day moving averages (MAs) on June 30. This is critical, especially if stocks can hold.
The DOW breached below 12,000 the first time since March 10, but it has rallied back and is looking good on the chart. There was a rotation in buying to the more conservative blue-chip DOW stocks and large-cap S&P 500 stocks and away from riskier growth stocks.
Technology and small-cap stocks had been under pressure, but have since rallied. The NASDAQ had declined to its 200-day MA, but subsequently rallied back above 2,700; while the S&P 500 is back to its April low of 1,294, closing above 1,300 on June 29.
The charts are at a crux. The break at the 50-day MA is bullish, as there is a bullish golden cross on the charts of the key stock indices.
In my view, the bias has reversed to positive, but can it hold? I continue to suspect increased selling pressure should stocks move higher, as the global risk factors continue to be evident.
And while there may be a desire to buy, you should be careful and wait until we see firm buying support before you jump in. Buy on weakness.
My investment advice is to remain careful and only select buying. Use put options as a defensive hedge.
Adapt a defensive approach at this juncture and wait for some sort of support buying. Be careful with growth and tech stocks. The upside may be limited at this juncture and stocks could drift lower or trade sideways through the summer months.