Stocks are mixed after opening weaker on Monday. The Nasdaq/Nasdaq 100 names continue to under-perform while the Russell led for most of the day. Over the last four weeks, stocks have gone from deeply oversold in the short term to deeply over bought. Since the Feb 11 low, the benchmark S&P 500 has surged a very impressive 11%! Remember, a 10% rally for the entire year was considered healthy in normal non QE/Easy Money times. So an 11% rally in 3.5 weeks is a very strong move. Before that the S&P 500 fell 7% after rallying 7.5% a few weeks earlier. Since last month’s low, oil prices have surged 30% which is also a very large move in 3 weeks. Large wild moves, both up and down, are a hallmark of a downtrend/bear market, not a strong bull market. During healthy bull markets how many times do you see the major indices swing like have swung since last summer? Instead, they typically occur during bear markets/downtrends. Barring more easy money from global central banks this still appears to be a bear market rally and not the beginning of a new bull market.
Chart courtesy: StockCharts.com
All Eyes On Global Central Banks
All the major central banks will meet over the next few weeks and investors are expecting more “easy money.” The European Central Bank (ECB) meets on Thursday and Mario Draghi has made it clear he is ready to “do more” to help stimulate their lackluster economy. The last time Draghi said he would do more he extended QE but did not increase it, disappointing investors and stocks fell after the news. This time expectations are very high so we’ll see how markets react after the meeting.
Several Important Areas Of The Market Are Trying To Bottom:
[su_rectangle_ad_left]In recent weeks, we have seen several important areas of the market try to bottom. Firs it was gold and silver which have surged over the past few months. Remember, gold and silver topped out in late 2011 and have been in a 4.5 year bear market. All bear markets end, we’ll see if this is an oversold bounce or indeed a bottom. More time is needed. Separately, other important areas, which are also in multi year bear markets, are trying to bottom and have caught a nice bid in recent weeks. If this is indeed “the bottom” that should bode well for the major indices. Some areas on our watch list are: emerging markets ($EEM), oil ($XLE $OIH), steel ($SLX), transports ($IYT), materials ($XLB), junk bonds ($JNK), just to name a few. We’ll see if that continues.
