Last weekend, we talked about the inability of bears to push the market lower and how they missed their chance. Price and sentiment are deeply related and impact each other. In a short-term perspective, lower prices often lead to more negative sentiment, which leads to even lower prices and sometimes panic selling. The Fed hinted that it might further raise the overnight interest rate later this year. The S & P 500 broke below the widely watched 204 level ten days ago, only to rally from there ferociously and get back near all-time highs. From failed moves often come fast moves in the opposite direction.
For a second quarter in a row, we see equities rally near the end of earnings season Coincidence or maybe people prefer to put money to work after major trend-changing events are out of the way? Stocks gained across the board last week. The rally was well represented including various market caps and sectors – Semiconductors, Financials, Energy. Consumer Discretionary, Healthcare, etc.
We talked about the extreme bearishness last weekend. The percentage of bulls among AAII money managers was super low. The picture hasn’t changed much, even after the rally last week.
So what do we have here?
1. The S & P 500 is near the top of its past 18-month price range.
2. Many managers are underinvested.
3. The 52-week high list has started to improve.
The combination of the above-mentioned factors means that there’s a pretty good chance that we see a continued strength next week. We might easily see an upside breakout in the S & P 500 that would later fail and lead to choppiness during the summer. This is just one likely scenario based on the current combination of price action and sentiment.
The bulls are still in control. Quite a few stocks broke out last week, but I still see plenty of long setups on the SL50 list of hot momentum stocks and beyond.
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