Even after a dismal June jobs report last Friday that missed consensus expectations by several miles, the S&P 500 INDEX, RTH couldn’t drop by more than 0.70% when trading was all set and done Friday afternoon. For the week the S&P 500 closed up 0.30%, the Nasdaq 100 up 1.85%, and the Russell 2000 up 1.50%. Mind you, all that was on top of the week prior’s massive rally.
Earnings season starts this week when Alcoa (NYSE:AA) kicks off the fun today after the bell. The question now becomes whether this roughly 7% rally over the past nine trading session has already discounted the pending news from the upcoming earnings season. We should find out soon.
The S&P 500 is currently only about 2% off its 2011 highs and has a first support zone between 1,330 and 1,334. Should that level fail I would then look for the 1,322, 1,312, and finally 1,300 levels to hold as support. If all of those levels fail I can assume this most recent reflex rally is over and start leaning short again. Alternatively, once a support level has established itself I would look for clear candle reversals and tight and defined patterns to develop that if broken to the upside would allow me to add select long positions with first target at 1,370.
All the sectors and hence most stocks have participated in this rally and a few important groups of stocks actually made new 2011 highs last week, among them:
The consumer discretionary sector as measured by the SPDR Consumer Discretionary Select Index (NYSE: XLY).
Retail as measured by the SPDR S&P Retail ETF (NYSE: XRT)
Dow transports as measured by the iShares Dow Jones transportation Average ETF (NYSE: IYT)
As I pointed out last week, given the velocity and trajectory of this most recent rally in stocks a pause is in order. I remain of this opinion and don’t think last Friday’s mini resting period was all that was necessary in order for stocks to shoot higher again.
One of the most curious charts remains the S&P 500 Volatility Index (VIX), which to me indicates it has to move at least somewhat higher from the current sub-16 levels to a reading of around 19 before stocks can continue the march higher.
And just because I can’t get enough of this chart, I must mention it again: the Nasdaq 100 (NDX) displays the most vertical rally in its chart and after hitting its 2011 highs late last week looks to be due for at least a little pullback before potentially attacking this year’s highs again. Of course a meaningful contributor to the rocket launch in this index has been Apple (NASDAQ: AAPL) which last week broke out of a multi month downtrend. As such this stock will take even more importance on my eight trading monitors in the coming days and weeks and a successful re-test of the blue downtrend line would give me first signals that this most recent rally is ready to head a little higher.
All in all this week the focus is slowly due to shift from mostly economic numbers in recent weeks over to corporate earnings announcements. JPMorgan (NYSE:JPM) and Citigroup (NYSE:C) report later this week but the real meat and potatoes doesn’t really get going until next week. The game plan for me in the early going this week is to further right-size the higher beta positions in the portfolios so as to be nimble and flexible when the earnings announcements start rolling in.
Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.
