Editor’s note: Serge Berger, the head trader and investment strategist for The Steady Trader, will be providing the Daily Market Outlook until Sam Collins returns on June 27.
Yesterday was a confusing and choppy day, to say the least. After a big down open, stocks looked as though they might slide much lower, but managed to hold their own. The boost came in the afternoon when stocks turned higher in a hurry in the last hour of trading after news broke that Greece reached a deal with the European Union and the IMF on a fresh five-year austerity plan.
In yesterday’s Daily Market Outlook, I pointed out that the S&P 500 had found resistance at the 1,300 area. Interestingly enough, during yesterday’s trading session, the SPX found support at the 200-day simple moving average (SMA) again, leaving a long-legged candle behind. As such, the most bullish thing on this chart currently is the retest and bounce off the 200-day SMA, while the most bearish takeaway from the chart is the lack of follow-through past the 1,300 area.
Small caps and technology stocks behaved much the same way, but outperformed on a relative basis and actually closed positive for the day. This sort of action is indicative of increased risk tolerance by investors.
More importantly, though, we have now arrived at a point where risk can be more clearly defined in both directions. A clear daily close above SPX 1,300 suggests further upside, while a clear daily close below the 200-day SMA smells of further downside.
Yesterday morning, I also highlighted the semiconductor group via the PHLX Semiconductor Index (SOX). Yesterday, the index proceeded to power higher through the most immediate resistance point. On the margin, this is a bullish development, but like I continue to reiterate, we still need participation from the financials and energy groups.
On the other hand, the most bearish footprint for equities is the rising U.S. dollar. The higher low from early June is confirmed, and we are now waiting for a higher high to become history. A higher high would technically be accomplished on a solid daily close above the upper blue line on the chart below.
All in all, this choppy environment could remain with us for a while and, as such, we would refrain from overtrading and only take the highest of the high-probability trades.
At the risk of sounding repetitive, in the current environment, risk management remains our No. 1 objective. Manage your emotions; stick to you rules.
For one high-probability trade, see the Trade of the Day.
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.
