Assuming the tariff problem does not erupt again next week the market is poised for some earnings gains.
The major indexes closed positive for the week and broke a three-week string of losses. All of the internals turned positive with advancers 3:1 over decliners on Friday and advancing volume 4:1 over declining volume. However, at only 5.3 billion shares the volume was very light but decent for a holiday week Friday. There were 291 new highs and 85 new lows.
Investor sentiment did not change much for the week. However, this survey ends on Wednesday, the holiday, and the gains did not really start until Thursday. I would expect a big burst of bullish sentiment for next week.
The Volatility Index had rebounded back to 18 early in the week but crashed back to 13 on Friday. The index fell sharply after the job numbers were announced. There is suddenly a lack of fear in the market and that suggests the bulls are back in town.
We are approaching a point where the market has grown tired of the daily tariff drama and should begin to ignore it unless President Trump ratchets up his rhetoric and threatens massive new tariffs. He has threatened in various tweets to increase tariffs on China by $200 billion or even $500 billion if needed. China has promised to aggressively retaliate. The two countries are at a standoff unless the president decided to increase the pressure. Those would be the headlines that could kill this rally.
As you would expect the A/D line on the S&P hit a new high with those strong internals. However, two days of gains did not increase the bullish percent index, which currently stands at 57.8%. That means 57.8% of S&P stocks currently have a buy signal on the point and figure chart.
The percentage of S&P stocks over their 50-day (59.2%) and over their 200-day (60.6%) improved slightly but the two days of movement were not enough to improve the percentages materially.
The S&P saw support at 2,700 and the 100-day average hold and overhead resistance at 2,742 was finally broken. I have been using 2,705 as resistance in my commentary because it was the closest round number with psychological significance since it was the original year-end average analyst target. The actual number was 2,742. The difference is not material. The chart lines were always correct.
The S&P MACD and CCI will turn positive on Monday with any material gains. The RSI is positive over 50. The next target on the S&P is resistance at 2,792. It is entirely possible we could see that this week if the tariff headlines do not get in the way.
The Dow finally closed well over the 200-day average after fighting it for the last two weeks. There were plenty of intraday penetrations but the index always pulled back at the close. The next hurdle is the 50 and 100 day averages at 24,625 and the round number resistance at 24,500 and 24,700. The Dow is the lagging index with all the indicators still several days from turning positive.
The Nasdaq exploded past resistance at 7,600 and could be on track to set a new high this week, tariffs permitting. The big cap techs were on fire and Facebook set a new high. The MACD is about to turn positive and the RSI is improving. The Nasdaq A/D line improved significantly. Remember the Nasdaq crashed the week of the 25th and it was ugly.
Facebook pulled ahead of the other FANG stocks but Google at least made an effort to catch up.
Semiconductors improved after Micron said the court injunction in China would impact only a very small percentage of sales in China.
The Russell exploded higher after a weeklong decline. The index has risen to within 13 points of a new high. If the tariff issues remain, the Russell should be the market leader but the Nasdaq took that spot on Friday thanks to the spike in the biotech sector. The Dow gains expanded the split between the Dow and Russell.
Oil prices rallied despite a rise in the dollar thanks to temporary supply constraints. Oil prices could be peaking and I would expect to see prices back in the mid $60s in September. That will drag on the market because of the impact on the energy sector.
I am positive on the market this week as long as we are not hit with another round of tariff headlines. The Q2 earnings cycle begins with the big banks on Friday and then a flurry of S&P stocks the following week. This should be incentive for investors to remain in the market. However, I do expect a rocky August/September this year. Be prepared.
Enter passively and exit aggressively!
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