2 Important And Positive Developments For The Bulls (Technically Speaking For 6/3)
Summary
- Oil continues to make a rebound.
- The ISM Service Index is finally showing lockdown effects.
- There were two key developments in the markets.
Oil continues to make a comeback:
Prices hit a low in late April when they briefly went negative. The chart then formed a double bottom in the latter half of April. Prices gapped higher at the beginning of May and have continued to rally. Currently, there are two key price levels (tagged by the two horizontal lines), both in the mid to upper-30s. Prices are above the shorter EMAs, which will continue to pull them higher. It's possible to think of this chart as an imperfect, reverse head-and-shoulders formation.
The latest ISM Service Index shows a coronavirus drop (emphasis added):
The NMI® registered 41.8 percent, 10.7 percentage points lower than the March reading of 52.5 percent. This reading represents contraction in the non-manufacturing sector and is the NMI®’s lowest since March 2009 (40.1 percent). The Business Activity Index fell 22 percentage points from March’s figure, registering 26 percent — the lowest reading for that index since the debut of the Non-Manufacturing ISM® Report On Business® in 1997. The New Orders Index registered 32.9 percent, 20 percentage points below the reading of 52.9 percent in March. The Employment Index decreased to 30 percent, 17 percentage points below the March reading of 47 percent.
The companion manufacturing index has already started to improve (although it is still showing a sharp contraction). Since the US is opening up, the service index will hopefully start to rebound in the next few months.
Markit Economics released the latest service index numbers today. Here are some highlights:
| Country | April | May |
| Japan | 21.5 | 26.5 |
China | 44.5 | 55 |
| Germany | 16.2 | 32.6 |
| Spain | 7.1 | 27.9 |
| Italy | 10.8 | 28.9 |
| France | 10.2 | 31.1 |
China's reading moved from contraction to expansion, largely due to an increase in domestic demand. All other countries reported drops in production, new orders, and exports. The rebound in the European countries is a hopeful sign. The lack of a strong rebound in Japan is modestly concerning, although it could quickly move higher in the next few months.
Let's look at today's performance tables:
Another solid day for the bulls. Once again, transports led the way higher, adding 3.32%. That index was followed by mid, micro, and small-caps -- a solid sign, indicating increased risk appetite. Large-caps were also higher. Note that the long end of the Treasury market continued to shed points, which is a big development.
10/11 sectors were higher. Four of the top five gainers were aggressive sectors. Interestingly, industrials keep making gains despite the weak economic backdrop and the sure to come terrible earnings reports. Financials also continue to advance even though they're at the beginning what is sure to be several quarters of bad news.
Today, there were two key technical developments. Let's start with the most important one: the long end of the Treasury market finally sold off through support:
The TLH broke support, as did ... 
... the TLT.
This is only one day of activity, so don't read too much into it. However, the move takes the candles for each ETF through the 10, 20, and 50-day EMA with the MACD in a clear downtrend.
Secondly, the equity indexes made strong advances through resistance, breaking away from their recent consolidation patterns (both chars are 2-week charts):
Small-caps were in a downward sloping channel pattern. Today they gapped higher and moved through recent resistance in the mid-140s. They closed above this level.
The SPY ended yesterday with a strong bar. Today, prices gapped higher and ended near a daily high.
The Treasury move is more important. Assuming that trend continues, it would signal that some of the bearishness in the market was ending. Hopefully, that money would flow from the bond market into equities.
This article was written by
Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.