MARKET ENDS WEEK ON A FIRM NOTE -- BUT LONG-TERM TREND STILL IN DOUBT -- JUNE SPEECH IS AVAILABLE FOR VIEWING
SHORT-TERM TREND STRENGTHENS ... The market is ending the week on a firm note. That's largely due to a short-term oversold condition and improvement in short-term market indicators. Chart 1 shows the daily MACD lines turning positive on the S&P 500 for the first time in a month (green circle). What's really needed to strengthen the short-term trend, however, is a decisive close over the 200-day moving average. Unfortunately, the weekly chart hasn't shown much improvement.
Chart 1
WEEKLY INDICATORS STILL NEGATIVE ... The good news is that the weekly S&P bars in Chart 2 are holding at the rising support line drawn under the 2004-2005 reaction lows. The bad news is that the weekly stochastic lines (on top of chart) haven't reached oversold territory at 20 and are still pointing down. The weekly MACD lines (beneath the chart) also remain in negative territory. Until those two intermediate-term indicators show some improvement, any short-term bounce will be swimming against the tide. What the market does over the next week will be very important for the market's long-term trend. Chart 3 shows why.
Chart 2
MONTHLY MACD LINES AT CRUCIAL CHART POINT ... Chart 3 overlays monthly MACD histogram bars over monthly bars for the S&P 500. The histogram bars plot the difference between the two MACD lines (not shown here). Crossings above the zero line are major bull signals. The last one took place the spring of 2003 (green circle). A crossing below the zero line is a major bear signal. The last one took place at the start of 2000 (first red circle). At the moment, the last histogram bar is in negative territory by a very slight margin. Keep in mind, however, that this is a monthly chart. That means that no actual trend signal is official until the end of the month. That's next Friday, June 30. That makes next week a very important one. If the market fails to rally (or weakens even further), the monthly MACD lines could give the first major bear signal in three years. A rally next week, however, could prevent that from happening. Stay tuned.
Chart 3
READING MY LIPS ... On Tuesday June 13, I gave a speech to traders on the New York Board of Trade. I used that opportunity to review the major intermarket principles relating to the dollar, commodities, bonds, and stocks. I talked about the impact of the dollar on foreign ETFs, and the close connection between commodity prices and emerging markets. I reviewed why I believe the new emergence of Japan is contributing to global inflation pressures and rising global bond yields -- and the potentially negative impact that could have on global stocks. I also review recent sector rotations out of basic materials and energy stocks and into consumer staples and utilities -- and why that could also carry a negative message for the stock market and the economy. All of the points have been covered at one time or another in my Market Messages. But it's one of the few chances I've had to try to put all of these intermarket factors together in one presentation. And I thought you'd like to see it through the courtesy of the NYBOT. You can see and hear it by clicking on the following link: Click Here to View Presentation (Note: Requires Microsoft Windows Media Player to view)
