In similar fashion to Monday’s trading session, the bears didn’t have much to say yesterday as the market gapped higher and ran up for the rest of the day. The rally I sensed could happen arrived yesterday, in the form of follow-through buying after Monday’s move up.
Before looking at the charts, let me touch on this week’s Greek parliament voting again. The first voting is scheduled for today and what they are voting on is the general austerity package being demanded by the IMF and the EU. The second and most likely more important vote however is on Thursday, when the parliament votes on the details of the tax hikes and spending cuts of the austerity package. While the first vote might pass rather easily, the second one could be more of a challenge. Given the importance of these votes I thought this might be worth pointing out.
Looking at the charts, it is worth pointing out the similarities yet important differences between that of the S&P 500 and that of the Russell 2000 small cap index.
Both indices bounced off of their respective 200 day simple moving averages (red lines) in recent days and are now heading in the direction of their 50 day simple moving averages (yellow lines). The Russell 2000 however has overcome the near-term resistance are between 805 and 810 which I pointed out yesterday. The index is also just about four points away from its 50 day simple moving average. The S&P 500 however has not yet overcome its near-term horizontal resistance (blue line) and is still further away from its 50 day simple moving average.
What I conclude out of this comparison is that strength is coming out of the small cap stocks, which smells like risk appetite is coming back slowly.
The transportation stocks as measured by the Dow Jones US Transport ETF (NYSE: IYT) are also at a critical spot as can be seen on this chart. Note the horizontal resistance as marked by the blue line. One stock that may already be signaling where the transport ETF fund is going is Fedex (NYSE: FDX), as it is breaking higher. (I pointed out component Fedex as a long candidate recently.)
Both the S&P Volatility Index (VIX) as well as bonds sold off yesterday. Ten-year Treasury Note futures closed the day -0.75%, which is a big one-day move.
On the more concerning side however remain the financials, especially Goldman Sachs (NYSE: GS) and JPMorgan (NYSE: JPM). It would of course make sense that funds are selling the weak performing bank stocks into quarter end just like they are buying the recent leaders in their efforts for window dressing.
Goldman Sachs (NYSE: GS) specifically has fallen out of a bearish pennant that I pointed out recently and thus is best left untouched from the long side until we get a clearer setup.
Names like Lululemon (NASDAQ: LULU) that are being bought into quarter-end have gone parabolic and are in my opinion near-term extended.
In summary, the quarter end rally has arrived in full force and if the small cap stocks are any indication we might see higher prices still in the next few weeks ahead. A key near-term factor however are the outcomes of the Greek parliament votes today and tomorrow. Ahead of the votes I find myself trading less and less and should stocks continue to push higher I would expect semiconductors, financials, and energy stocks to outperform.
- Serge’s trade of the day: Coca Cola (NYSE:KO)
- Sam’s outlook for today: Forget Greece – Low Volume the Scary Story
- Sam’s trade of the day: Pentair (NYSE:PTR)
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
