A Closer Look at This Wonderful Rally

|
Includes: DIA, QQQ, SPY
by: Alex Filonov

Just returned from vacation and market looks better and better. Dow Jones is running over its 13 day moving average like it did in 1932. Let's take a closer look at the market.

Technicals

Like in July-September of 1932, the 13 days moving average is the most important indicator. All major indices are running above it. Dow almost touched it couple of times, but never crossed down since March 11, not even intraday. All indices are also crossed above 50 days moving average, and 13 days MA is above 50 days MA. Dow is also holding above very important technical level of 8000. Granted, some technicals show signs of exhaustion, for example, the breadth is down, but overall, things look bright.

Sentiment

Strangely enough, after a month-long beautiful rally, a lot of market players still don't believe it. For example, Todd Harrison thinks it's a bear market rally. Quick look at CNBC yesterday doesn't show very bullish sentiment. Notably, Jim Cramer and Doug Kass are both bullish, but overall sentiment is bearish to neutral, which is, of course, is a bullish sign.

Fundamentals

Honestly, fundamentals are as bearish as they can be. It looks like the S&P 500 index had negative earnings in the first quarter. If so, it would be the first time since times unknown. There are some positive surprises, mostly from tech companies. But they happen after multiple downgrades and don't compare favorably with year-ago quarters. Bank earnings don't tell me anything, because with all accounting changes you can't compare this quarter earnings with the last year. So fundies are bearish.

Again, who cares about fundamentals in technical market? This rally looks good so far and I'm not selling anything until Dow breaks down through 13 days MA. Next support levels are 8000 and 7500. If it retraces below 7500, we can get to March lows or even lower. I think that we had a bottom in March, but you never know until it's too late. On the way up, the rally has one height to take: 200 days MA. But that's way too high from the point where we are now and I don't think we'll get there without some dips.

About this article:

Expand
Want to share your opinion on this article? Add a comment.
Disagree with this article? .
To report a factual error in this article, click here