Our index indicators are giving bullish readings, as the Dow Industrials and S&P 500 have moved back above their 50-day moving averages. The Nasdaq also remains above its 50-day moving average. But with the ongoing sideways action of two of the indices, falling below their 50-day averages has not been an event to worry about recently. The 200-day moving averages continue to be the more important indicators of the longer-term market health. For the Dow, that average is currently at 17,390, for the S&P 500, 2,010, and for the Nasdaq, 4,645.
Our internal indicators continue to be bullish, but they are giving more mixed readings than the major indices. The 200-day Moving Averages Index continues to be level-3 bullish, and the Advance/Decline Index and Cumulative Volume Index remain level-1 bullish. Five of the nine major S&P 500 sector funds are level-1 bullish, up from three last week. But both Dow sub-indices, the Transports and Utility Averages, are trending lower. As we continue to mention, the U.S. economy is sputtering, and a weakening Transports Average is one confirmation of that.
However, Treasury bonds (TLT) are not on board with that sentiment. A weaker economy is a reason for Treasury prices to rise (and interest rates to fall), but TLT instead is threatening to fall below its 50-day moving average. We continue to believe that this is mainly a consolidation phase from a rally that began last November and ended in February. It could also be evidence of money leaving for overseas markets. Many foreign markets have stabilized and are showing signs of life, underpinned by ongoing massive central bank monetary stimulus. However, this is not evident in the U.S. dollar’s chart (UUP), which continues a bullish trend that began last August.
Commodities, including oil (USO), continue their nascent recovery, but they have a long way to go before excitement is warranted. The bugaboo for commodity growth is slow economic growth. Stock markets rallying on the back of monetary stimulus is one thing; actual economic growth resulting from that stimulus is another thing entirely. One need not look any further than the U.S. for an example of that. Our internal economic indicators continue to show the U.S. economy slipping lower, and last week’s employment report was evidence of that. Slow economic growth spells trouble for commodities.
With the major stock indices, including the S&P 500, improving to bullish readings, taking additional bullish positions is warranted.
I have one for you that rated highly in my technical analysis with a high probability of resulting in profit:
Harris Corp. (HRS) is an S&P 500 company that resides in the information technology space. It received a recent downgrade and slipped as a result, but my indicators suggest it’s going to snap back in short order.
Buy the HRS Aug 90 Call options at $1.20. or lower.
After entry, take profits if HRS shares hit $84.90 or the option price hits $2.30. Exit if the stock price closes below $78.60.
But with the stock market being propped up almost entirely by monetary stimulus, a change of sentiment can happen almost overnight, so, along with your bullish trades, holding bearish positions is also prudent.
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