Spring has arrived and so has a confirmed stock market uptrend with a “green” signal. Friday’s action, on day 16 of a new rally attempt, finally notched a follow-through day (on the S&P500 at least) confirming increased institutional demand for equities. At least for now.
With today’s price and volume action on the S&P500, our Current Market Outlook has been upgraded to “Market in an Uptrend” with a green light. The TPM “Core Four” internal indicators are at 2 green and 2 yellow. The net result is a green light. Staying in line with this signal and our discipline, we have begun re-committing capital back to work in our strategies.
Now don’t get us wrong. We are pleased with the resumption of the stock market’s uptrend. But according to our research on the history of good technicals, this rally attempt has lacked punch and still leaves a few things to be desired. Perhaps another frost is still due.
While technical conditions have improved, they are still conflicted. For one thing, the Nasdaq did NOT confirm a follow-through day (FTD) today as its volume came in too light and the gain was not large enough to meet the minimum expectation for a FTD.
Another concern was the late nature of this FTD. Day 16. We have observed that the strongest FTD’s generally occur between days 4-10 (ideally between days 4-7) of a new rally attempt. According to Investor’s Business Daily research, a FTD can come later and still work. It is also a good sign if all the key indexes confirm the same day, or on near consecutive days. Perhaps the Nasdaq will kick into gear early next week.
On a positive note, the S&P500 touched/tested its 50-day moving average (mav) on Thursday and held it through today’s close. Buyers stepped-up right-on cue. Seasonal positive biases may also be in play with the end of quarter push by portfolio managers upon us, the first day of month inflows coming on Thursday, and a historical upward bias into a long holiday weekend. (Praise God for Easter!)
Another bright technical ingredient for the bulls is the low reading on the CBOE Volatility Index (VIX), currently under 19. Our research shows that downside risks to the stock market are minimal while the VIX trades under its own 50-day mav.
There are a few negative considerations that could cause this rally to fail quickly, though.
First, the higher interest rate “burp” that caused the sell-off during the past few weeks is likely far from over. Forthcoming pressure on the value of the US $ (as a result of trillions in reckless stimulus) may push the US 10-year note rate over 2% this year. This would generally be negative for most stocks.
Second, Q1 2021 EPS reports start rolling out in mid-April. This will likely show a continuation in the dramatic recovery started by Trump and his team back in spring of 2020, but possible EPS disappointments or reduced outlooks could make for a choppy period.
The Dow Jones Industrials and Transportation indexes continue to lead and are at all-time highs. This is still a bifurcated market. It’s worth repeating form our last post, “While these types of market conditions can be very challenging for novice and professionals’ investors alike, maintaining and updating a prudent plan of action, as we do, can make a huge difference.”
What can investors do now? Watch closely for any Distribution Days (professional selling) by Wednesday of next week. Allocate capital into the strongest ideas from your watchlist. Keep an eye on the NYSE 52-week lows as the indexes hit new highs. Finally, praise your Savior!
Have a Triumphant day! ®
The information in this article is based on data obtained from recognized services and sources and is believed to be reliable. Any opinions, projections or recommendations in this report are subject to change without notice and are not intended as individual investment advice. Not to be used as legal or tax advice.
©2021 Triumphant Portfolio Management, LLC.