Happy Friday everyone. Stocks rallied for the fourth day in a row, leading the Dow Jones Industrial Average to its fourth consecutive quarterly gain.  The S&P 500 closed up 1% on the day, down 1.80% for the month and down 0.40% for the second quarter.

The last four days’ rally brought all of the major U.S. equity indices in near vicinity of their 50 day simple moving averages and a downtrend line originating in early May.

Case in point the Russell 2000 – I have walked readers of this column through the most recent rally in real time; after building a bottom in the early part of June the Russell 2000 started slowly marching higher, first finding horizontal resistance around the 810 area and then finally busting higher up to today’s level at the blue downtrend line.  The stair-step approach higher that stocks took off the bottom, while at the same time getting it done in a matter of a few days speaks positive for the bulls on the margin.

The sell-off in bonds also nods in favor of stocks.  On the charts the 10 year Treasury Note Futures came under serious pressure the last four trading sessions and broke out of an upward trending channel and now sits at a flat 200 day simple moving average (red line).

The following chart shows the relative performance of 10 year Treasury Note Futures (white line) compared to the S&P 500 as measured by the SPDR S&P 500 ETF (NYSE:SPY) in the second quarter.  Stocks lagged until the last four days of June when a type of intra-quarter mean reversion started taking place.

The low levels in implied volatility that I pointed out yesterday morning plunged lower still yesterday.  Both the S&P 500 Volatility (VIX) and the Nasdaq 100 Volatility (

VXN) are now well in teen-land and as such not reflecting any fear on the part of investors.

Yesterday I also pointed out the first sign of life out of the financial sector.  The Securities Broker/Dealer Index (XBD) bounced nicely over the past few days and is something I will keep a close eye on going into next week.

Another sign that risk may at least temporarily be bought again is coming from the international currency markets.  The AUD/USD has bounced hard in recent days and is nearing the top of what could technically be described as a bull flag.  At the moment it looks like the Aussie Dollar could rally further, which would be a bullish sign for stocks and risk in general, particularly for commodities.

The Swiss Franc is traditionally a safe haven in time of uncertainty, and the weakening of the Swiss Franc versus the Euro and the U.S. Dollar in recent days may also be a sign of some risk appetite coming back.

In my view, the velocity in which we bounced off the bottom over the past few days, coupled with the above mentioned signs in the bond and currency markets along with recent volatility gives stocks a positive undertone for a time-frame of a few weeks.  In the very near-term of the next few days a little pull-back in stocks would be expected given the 50 point move off the bottom, although fresh money being allocated at quarters’ begin needs to be accounted for.

In short, stocks may run higher over the next few weeks but by the latter part of the summer may face stiff head winds again.

Serge Berger is the head trader and investment strategist for The Steady Trader. Sign up for his free weekly newsletter.

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