To Chase or Not to Chase This Stock Market Rally…

Can stocks build upon last week's fireworks?

Stocks rallied sharply last week; the S&P 500 as represented by the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) rallied 1.74% last Friday to finish off the week higher by about 3.50%. The PowerShares QQQ Trust (ETF) (NASDAQ:QQQ) rallied more than 4% and closed the week at fresh all time highs while the small capitalization index the iShares Russell 2000 ETF (NYSEARCA:IWM) rounded off the week up by 4.25%. The IWM ETF is now only 1% off its January all time highs.

stock market today

To be clear, it’s easy to recite the past week’s stock market statistics. The more pertinent question now is whether stocks on the back of last week’s rally are now to be bought or dare I say “chased higher” yet again?

Over the past couple of weeks I struck a more cautious tone in this here weekly update column, saying that the SPY ETF is at risk of making lower highs versus its late-January all time highs. While I remain cautious and it in my eye will be difficult for stocks to sustainably trade above the January highs, it is important to note that I did not “short” or bet against the SPY ETF. There is a very clear line between treading cautiously and outright betting against a stock or index’s rise.

In other words, while personally I did not participate as much on the long side last week as I would have liked to, I did not get squeezed by having index short positions on.

SPY ETF Charts

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Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

A look at the chart of the SPY ETF with weekly increments shows that the index remains at the very upper end of the 2016/2017 up-trending channel.

Although aggressive traders may try to buy the SPY ETF on the back of last week’s bullish weekly candle for another 2.50% higher to re-visit the late-January all time highs, in my eyes the more intermediate term call here is that this index is largely capped for the time being.

Click to Enlarge

Moving averages legend: red – 200 week, blue – 100 week, yellow – 50 week

While all major sectors that I track closed in the green last Friday, the financial stocks and banking shares in particular acted bullish.

One way to look at banking stocks as a group is by tracking the KBW Nasdaq Bank Index. On the  below chart note last week’s bullish outside candle that now has this group of stocks giddy to break higher. Plenty of single name large cap US banking stocks already flashed marginal breakouts last week and a broader based move higher could be imminent.

In summary, although in my eye the SPY ETF may find it difficult to break much higher on a sustainable basis, pockets of the market such as financials and banking stocks more specifically are acting notably well and could now climb higher after a multi-week sideways trot.

Check out Serge’s Trade of the Day for March 12.

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.

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