Don't Fight the Trend

Another up week for the major indices closed out on Friday ... the S&P 500 Index (SPX) has now closed higher 11 of the last 13 weeks and the Nasdaq 100 (NDX) has been up for 10 of the last 13 weeks. Very few earnings reports due this week, the likes of PBY, MW, DLM, and NSM among the highlights. Due up this week on the economic report calendar are Crude Inventories, Fed Beige Book, Initial Jobless Claims, with May Retail Sales on Thursday morning probably the most important release of the week.

Markets were down on Monday, and the CBOE Volatility Index (VIX) was back above the 30 level intra-day. You can see on the following Daily chart that the VIX has been in a down-trending channel since March, but recently has been waffling around the key 30 area. For the time being, the VIX looks constrained in the 27.5 to 32.5 area.

VIX Daily Chart

The SPX has remained in the uptrend in place since the March 9th bottom. All pullbacks have been contained by (and mostly clear above) the 40 day exponential moving average (yellow line). More recently, a 930 to 950ish range has been established.

While many think the recent rally may be over-extended & "overbought", don't fight the trend, especially as long as Percent R remains strong and keeps moving back above the 80 level after pullbacks.

SPX Daily Chart

We have discussed recently how there is a long-term commodity/inflation play developing. The chart below examines the long-term relative performance of the PHLX Gold & Silver Index (XAU) versus the SPX and NDX. The weekly % performance chart shows that since the October 2007 stock market top, the XAU is down around 15%, while the NDX is down around 30% and the SPX around 40%. In addition, since the October 2008 market selloff, the XAU has also outperformed the two major broad market indices.

The top holdings of the XAU include Barrick Gold (ABX), Goldcorp (GG), Newmont Mining (NEM), and Freeport McMoran Copper & Gold (FCX). The rally is not constrained to Gold alone, as Silver has also been very strong recently.

XAU vs NDX vs SPX Weekly Chart

Bottom Line: The market continues to show resilience on pullbacks. Despite some negative sentiment among market "experts" and the possibility of an emerging trading range, until this market strength is confirmed to break down, the bias should be to the long side.

Disclosure: no positions

Comments

[TWS Investm...:]

Agreed, the charts point to nothing but higher prices. "The trend is your friend."

Jun 09 10:24 AM

[lex:]

the trend is been manipulated..

Jun 09 11:55 PM

[DmytrenkoArtem:]

we could see a powerfull corrections in commoditites.. its growth could be choken as its growth not on demand but on inflation expectations... so character of growth in short/middle term like this could be like slow growth - quick correction - slow growth

Jun 10 07:02 AM