Tuesday, June 02, 2009

S&P 500 Reaches Major Technical Milestone

The chart above shows the S&P 500 as of yesterday's close, when the index closed above its overhead 200-day average for the first time since Dec. 26th. This is a pretty major technical milestone for the index, as technicians will take notice to indexes moving above their 200-day averages.

It has not yet registered another major indication of a new bull market, which would occur when the 50-day moving average crosses above the 200-day moving average. The only major index where I see this condition already met is the Nasdaq 100, which is a great sign for growth stocks.

The lack of sustained downside pressure in the market continues to feel to me like there are still lots of underinvested managers, as well as tons of investors out there who continue to anticipate this market rolling over, and are shorting at every sign of weakness, only to cover those shorts when the market moves to new recovery highs.

The strength of yesterday's rally was surprising, even as we often see new mutual fund money come in on Monday's, as well as the first day of the month, both of which occurred yesterday. Breadth was very strong in the major indexes, with more new highs registered than any other time during this 3-month rally.

This morning, pending home sales spiked +6.7% (vs. +0.5% consensus), up nicely from last month's +3.2% pace. This is helping homebuilders lead the way (+2.1%), followed by consumer staples (+1.1%).

Financials are lagging today (-1.5%), after JPMorgan (JPM) is pricing a $5 billion offering to get ready to repay TARP. Morgan Stanley (MS) and American Express (AXP) have also announced new offerings.

The dollar is lower this morning, despite comments from Geithner that Chinese officials remain supportive of the U.S. dollar and there is no risk of monetizing debt in the U.S. The lower dollar is helping push gold prices higher, but oil is taking a breather after topping the $68 level yesterday.

Asian markets were mixed to lower overnight; the 10-year yield is lower (3.68%) after spiking to a new high for the year yesterday; and the VIX is back down below the 30 level, falling -2.1% so far to 29.40.

Trading comment: My only trades yesterday were to take some profits in some of our trading stocks (CLR, ANR), and this morning I took some profits in AMZN, which has had a nice pop. I have not made any moves in our etfs, although I am closer to taking partial profits in MXI, which is up ~14% since I informed readers of our purchases. (As I mentioned, if you want real-time trading updates from me, check out www.twitter.com/lagenghis)



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