Weekly Stock Market Tips by Marc Chaikin
Lower and Upper Ends of Trading Range Seen in Volatile Week
The S&P 500 Index closed on Friday at 2,055.47, up 3.03% on the week. The bumpy road for the stock market continued last week as the market broke below the 1,990 support level in early trading on Monday, only to rally and break above the upper 2,060 resistance area on Friday before closing down a fraction on the day.
The market spoke loudly last week as it held support and then traded sharply higher. The drivers were a steep rally of over 20% in the price of crude oil, and a sharp increase in 10 year Treasury bond yields to above 1.9%. We are still locked in this 3 ½ month trading range between 1,990 and 2,060. Last week's turnaround, if not immediately reversed, may bring money in off the sidelines and enable us to finally see a resumption of the bull swing that has been on hold for the past 3 months.
Mid-cap stocks made new all-time highs last week with small caps also stronger than the major averages. The market rallied from extreme levels of investor pessimism and is still subject to cross currents in Europe, China and the energy markets. It feels more comfortable with last week's rally to buy dips in bullish-rated Chaikin Power Gauge stocks, now that the market has spoken.
Had I been more convinced of the market's ability to hold at the bottom of the trading range last week, I would still be a bit cautious today. That said, as we head into March, according to my stock research, the Financial and Technology stocks typically start to act better and that is a big plus for the market.
What have we learned from earnings season?
Analysts have been lowering their earnings estimates at the fastest clip in years and therefore expectations have generally been exceeded. Even when companies have disappointed, buyers have come in to provide support. The sector shift detailed in our ETF analysis out of Utility stocks and into Energy stocks may last a bit longer but there is no concrete evidence that crude prices have seen there lows. With crude stockpiles at very high levels and growing, supply is still a problem.
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