The bulls are on the verge of taking complete control of this trade. The Nasdaq has gotten itself comfortably above all of their major moving averages and it looks like they want to make new highs for the year. The Dow closed back in positive territory for the year and that is giving the market confidence. The Transports broke their daily down trend and they are now looking to test some of their important moving averages. The S&P cash is trading right on their 150 day smooth moving average and they are testing the top of this recent range.
The market seems to have taken the debt crisis in Europe and put it on the back burner. Even though the market is rallying, it feels like there has been little participation in this rally. I think that traders are scared to buy into this rally and I also think that a lot of traders are thinking that a continuation of this rally would be unlikely. It feels like a lot of traders missed their chance to buy the market near the lows and nobody wants to chase it higher (we are now riding the wall of worry). I think the lows are in for the year and we will see hedge funds and money managers chase performance into the end of the year.
What could change my mind......
Worse news coming out of Europe or another major event (news can change anything but I think that the worst is behind us for this year).
I think that the Transports will be the key to this rally. If they can sustain trade above their 50 day moving average then I think that we will see new highs in the Nasdaq, Dow and possibly the S&P. If the Transports fail to hold their 50 day moving average then I think that the lows for the year are back in play.
This week I will be keeping a close eye on the Transports. If they continue to grind higher and test resistance I will remain a buyer of breaks in the S&P. If the Transports start to slip then I think that will create some doubt for the bulls and we could see the market sell off and retest some major moving averages. (see charts below)
For my day to day thoughts sign up for a free 7 day trial of the morning brief. Have a great week.
Moving Averages; Black (10 day), Blue (20 day), Green (50 day), Pink (200 day) Purple (150 day smooth avg.). Horizontal Lines; Blue (High of the year), Red (Low of the year), Green (Unchanged for the year, Black (last summers range), Light Blue (Old highs that could be tested)
For my day to day thoughts sign up for a free 7 day trial of the morning brief. Have a great week.
Moving Averages; Black (10 day), Blue (20 day), Green (50 day), Pink (200 day) Purple (150 day smooth avg.). Horizontal Lines; Blue (High of the year), Red (Low of the year), Green (Unchanged for the year, Black (last summers range), Light Blue (Old highs that could be tested)
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