Last weekend, in my Market Forecast, I wrote:
"Although this rally looks to be struggling, I'm not necessarily convinced that it is done. We are mostly in cash and will be prepared to trade on either side. If the market indices break the support at the 30-day MA, we may see the slide accelerate. SPX 875 will be an important support level; for Nasdaq it will be 1650. The actions this week could be very important in determining the market's next move."
Indeed, the rally was not done; although it was a very volatile week! Monday was a holiday. On Tuesday, the market jumped after a surprise surge in consumer confidence. Techs led the rally, but, the market still closed within the recent range. On Wednesday, the market was spooked by slumping bond prices and gave back much of Tuesday's gains. On Thursday, the market ended higher in choppy trading. On Friday, the market repeated a similar pattern as the day before, fluctuating for most of the day and pushing higher for a surprisingly strong close.
The market ended the last week of May with a solid gain, and, we wrapped up another "fabulous month" (click here) to see the trades! The Dow ended the week up +223.01 points (just above 8500!); SPX added +32.14 points; and, Nasdaq jumped +82.32 points (highest level since early November 2008!). Once again, the market is at the high end of its recent range. Let's see where the market indices stand after Friday's close:
SPX
On Friday, SPX added +12.31 points to close at 919.14, above its daily MAs and the 910 level that it fought with all week! The MACD turned up.
Nasdaq
Nasdaq gained +22.54 points to close at 1774.33. It closed above its daily MAs and pushed its daily upper BB open. The MACD was higher.
SPX finally fought through 910 and closed at nearly 920, its highest level in more than 2 weeks. Nasdaq experienced a even strong jump, closing at a 6-month high. VIX sank back to below 30. SRS (real estate ultrashort ETF) closed near its all-time low, while SKF (financial ultrashort ETF) slumped back into the low 40s. For the new week, the market looks strong and ready to break higher. SPX should look to push above 950, although it may see some resistance around that level. Nasdaq can easily punch through 1800, above which 1900 is the next resistance. Most sectors participated in Friday's "last-hour" buying frenzy. Let's see how some of them look:
Sector Watch
USO (oil)
We have been mentioning over-and-over again that the energy sectors will be very important in the continuation of the market recovery. Oil seems to be helping the energy sectors. Crude prices have bounced back above $66/barrel. USO broke through the resistance at $35 last week and closed above $36! The bullish formation in its daily MAs is strong with the daily MAs curving higher. Its next resistance is at $37.5.
OIH (oil services)
OIH broke out higher last week, closing above the resistance at $105. We successfully identified the break out potential and profitted from a trade in DO calls. RIG, NOV, NE and SLB also did well. I think these can push higher early in the new week.
SOXX (semiconductors)
Besides the energy sectors, I've mentioned that the semiconductors will also play a crucial role in the market's recovery. Last week, SOXX closed above the resistance at 270. Its daily MAs are showing a new bullish formation. Its daily upper BB just opened up, hinting for more upwards motion. This bodes well for the techs. BRCM and TXN have been really strong. I think BRCM still has room to go higher. QCOM and INTC, on the other hand, have been somewhat muted, although QCOM looks ready to make a move higher.
BTK (biotech)
Commodity and energy sectors have finally caught up with the broader market. But, biotechs were still lagging. As you can see, BTK has been trading in a tight range for the past 2 months. On Friday last week, it finally showed signs that it could be ready to go higher. It closed just above its daily upper BB last week and its daily MAs are looking to start a new bullish formation. Like other sectors just before they started to go higher, there are some beaten down stocks in biotech that are starting to make some high percentage gains. Here are some stocks seeing renewed strength: HGSI, INCY, OXGN, SNY, ELN.
Good night and HappyTrading! ™
