The U.S. Stock Market is bouncing back after the testimony from Janet Yellen last week that solidified assumptions the Fed will be holding off on raising rates this year. Economic data has been weak for the last few weeks which is keeping the Fed from moving too soon. Although the word “patience” was taken out of the statement, markets reacted positively after the Fed Chair skillfully took out a word but was able to signal to markets that they reserve the right to shift and could possibly hold an impromptu press conference.
Equities rose sharply but pulled back a day after. The S&P 500 looks poised to hit new highs and follow the lead of a few other indices worth reviewing.
S&P 500 could be ready to rise further and follow the lead of the Nasdaq, IBB, and Russell 2000. The strong dollar could be hurting large cap stocks but the sign of a true rally is when small cap stocks and tech remain resilient in a challenging environment. The several weeks of consolidation that started in November could result in a strong move upward and the parabolic movement in the ‘sweet spot’ of a rally hasn’t occurred for this index after a somewhat failed breakdown.
The IWM, IBB and NASDAQ have all broken out of important ranges and it’s possible the SPY and XLF could have been failed moves to the downside which could result in sharp moves upward. Facebook is another reason to believe institutions are still piling into stocks as it hit a new high and BABA is even showing some strength after a huge lockup expiration. Tesla and Apple didn’t participate last week which isn’t cause for concern – yet.
Watch volatility carefully and look at individual stocks you own for entry points. It’s important to look at at the overall market suspiciously if the charts above can’t find follow-through this week. Lastly, below the S&P 500 Midcap 400 shows the market isn’t necessarily waiting for the dollar to decline and there could be strength across the board. The volatility I identified in my last update declined as oil fell and if it hits a new low in the next 2 weeks it could be the precursor to the parabolic move up for the overall market. The economic gains from lower oil prices will begin hitting restaurants as soon as the weather on the gets warmer which should be good for the overall economy in the second half of the year.
Equities have had a good run but I would be buying on dips in the intermediate term and look for pullbacks to be opportunities until a major distribution day. The S&P 500 is only up 2.35 percent for the year but the IWM is leading at 5.71% with over 60 percent of that gain in the past week. Seems like bulls may stay in control until the NASDAQ hits an all-time high with 6,000 not too far behind if growth becomes more valuable in a strong dollar environment.