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 July 25.
In yesterday’s Daily Market Outlook, I pondered whether the bulls might have enough fire power left to turn the charts back up. A few short trading hours later, we found out that the answer was a resounding “yes” — even if it’s just for a short while.
Talk of U.S.lawmakers making progress on the debt ceiling debate, as well as promising speeches from European politicians on their issues led to the pop higher in risk assets. After bouncing off the crucial 1,295 level on Monday, the S&P 500 followed through yesterday, and managed to close above the equally important 1,320 level, as well as the downtrend (blue) line dating back to early May.
If you squint hard enough, you will see that the S&P 500 yesterday also closed right near the top of the intraday trading ranges of July 12, 13, and 14 — they are the long tails on the candles. It remains to be seen if we can surmount those levels, but yesterday laid a good foundation for the potential of further upside. Our upside target, unless of course we break 1,295 on a slide lower, is 1,375.
It’s sad but true, the financials again lagged the broader market as both Goldman Sachs (NYSE: GS) and Bank of America (NYSE: BAC) failed to impress. On GS’ chart, the multi-year support level near $128 and dating back to early 2009 is worth pointing out as a point of reference for now.
As mentioned earlier this week, however, the energy complex was setting up positively and, as expected, yesterday followed through with a nice move up. The chart of Anadarko Petroleum (NYSE: APC) displays the bullish setup in the energy sector the best, although many big energy names look much the same. If only the financials could get their act together, a further relief rally would be much easier to come by.
Other leading indicators, such as the semiconductors and copper, both had solid days yesterday — another check in the plus column for now. A single up day as in the case of the PHLX Semiconductor Index (SOX) does not make me want to scream “outright bullish,” but in the case of copper a break of a multi-month downtrend (blue line) followed by consolidation and then further upside yesterday does look promising. Someone is buying copper (the Chinese) and using it in production of “stuff” and macro economically speaking that is a good sign, on the margin.
As I always like to point out both sides to the tape, however, I’ll also point to the bond market where especially the long end of the bond curve (30-year Treasurys) had a great rally yesterday. People continue funneling money into bonds and from a risk perspective that is not a good sign as it reeks of risk aversion. One interesting development since July 13 has been the in-sync movements of U.S. Treasurys and stocks.
The chart below shows the S&P 500 SPDR (NYSE:SPY) compared to the iShares Barclays 20+ Year Treasury Bond Fund (NYSE:TLT). Bonds and stocks tend to move in opposite directions (although if we look at cyclical studies that is not always the case), yet since July 13, the two asset classes have moved in sync. Sooner or later they should decouple again, and it will either be stocks or bonds that will remain in their uptrend. Just a little something to keep in mind.
All in all, it was a solid up day yesterday, for equities and one that was desperately needed for the bulls to keep them from becoming the bears’ lunch. With Apple’s (NASDAQ:AAPL) great earnings announcement last night the bulls might now have more upper hand, so to speak, and could continue pushing this tape higher for a little while, especially if the financials could muster up some signs of life.
For one stock that’s likely headed higher after earnings today, 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.
