This Rally May Not Have Legs

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On Thursday, the market continued a move higher that began on Tuesday over optimism regarding the economy. Retail sales for May were up; however, the likelihood of a short-term interest rate increase is now stronger than before.

Stock gains were modest as buyers held back on a report that the International Monetary Fund (IMF) had made no further progress with the Greek bailout. And news that Communist Party supporters occupied the Finance Ministry building in Greece also helped put a lid on buying.

The Commerce Department said May retail sales rose 1.2% versus an expected increase of 1.3%, led by strong auto and gasoline sales. Every category in the report was higher except for health and personal care stores.

Jobless claims rose slightly last week with initial claims at 279,000, up from 277,000 the previous week.

Transport stocks were up 1.1% on the day with CSX Corporation (NYSE:CSX) leading, up 3%. The Dow Jones Transportation Average is up 1.8% in June reflecting a steady economic recovery. But the near-term jump in the index has not yet reversed the sharp intermediate downtrend that is still in place.

The benchmark 10-year Treasury note fell to 2.38% from 2.48% on Wednesday. The U.S. dollar rose, putting pressure on crude oil futures, which fell 1.1% to $60.77 a barrel. The dollar closed at 1.13 against the euro, up 0.4%. Gold for August delivery also fell as a result of the stronger dollar, closing down 0.5% at $1,180.40 an ounce.

At Thursday’s close, the Dow Jones Industrial Average gained 39 points at 18,039, the S&P 500 rose 4 points to 2,109, the Nasdaq gained 6 points at 5,083, and the Russell 2000 was up 2 points at 1,269.

The NYSE’s primary market traded about 770 million shares with total volume of 3.1 billion. The Nasdaq crossed 1.6 billion shares. On the Big Board, advancers outpaced decliners by 1.6-to-1, and on the Nasdaq, advancers led by a small margin.

S&P 500 Chart
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Chart Key

The most significant technical occurrence of the week was Wednesday’s rally that resulted in the S&P 500 closing above its 50-day moving average. Thursday’s plus close, though on weak volume, supported the reversal.

Even though volume was not spectacularly high, up-volume was ahead of down-volume on Wednesday by 4.5-to-1 on the NYSE and 3-to-1 on the Nasdaq. Unfortunately, Thursday’s follow-through wasn’t strong enough to surpass the short-term downtrend line (black dashed line), which connects to the high at 2,135, or the resistance line at 2,117.

IWM Chart
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It is normally considered a strong positive when an index breaks above its 50-day moving average. However, on the chart of iShares Russell 2000 Index (ETF) (NYSEARCA:IWM), we see in the highlighted area that volume on the break was slightly lower on Tuesday’s decline than on Wednesday’s advance. But Thursday’s volume was significantly lower.

Conclusion

It appears from our charts that there are not enough buyers who accept the notion that good news for the economy is good news for stocks. Since they are fixated on what an interest rate increase will do to the economy, it looks like this rally may not “have legs.”

Thus, traders should sell into the rally at the appropriate resistance lines of the major indices or enter bearish strategies with stop-loss orders just above the March highs.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.


Article printed from InvestorPlace Media, https://investorplace.com/2015/06/daily-market-outlook-this-rally-may-not-have-legs/.

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