Dear Reader,
Here’s what to look for in the action today…
General Trends
Friday was a “consolidation day” for the broad stock market. The S&P 500 stayed within a relatively tight trading range. The index DID NOT give back more than 50% of Thursday’s big gains. So the momentum remained with the bulls.
And, since the world didn’t end following the French election results yesterday, the stock market is poised to blast higher today.
Here in the Market Minute, I’ll show you how the major markets are setting up for the day… and share my thoughts on the sectors to watch. It’s how I’m going to trade my own money.
Stocks
S&P 500 futures are up more than 20 points. That’s more than enough to power the index out of the downward channel pattern on the daily chart I showed you last week. If the index can hold onto this morning’s gains, then it should easily close back above its 50-day moving average (MA) line (2358), and run toward the 2385 level.
It probably won’t be a straight shot higher, though. There are multiple levels of resistance overhead – any of which could stall the rally.
Take a look at this 60-minute chart of the S&P 500…
The red lines on the chart outline a large consolidating triangle pattern. The first resistance (the red line at the top of the triangle) is up around 2368. With the S&P futures up 20 points, the index will be challenging that resistance on the opening.
The next target lines up with the early-April high (the second blue line) at about 2376. If the S&P can get above those levels, the mid-March high at 2385 comes into play.
We’ll have to pay attention to technical indicators – like the McClellan Oscillators for the NASDAQ and NYSE – as the S&P approaches those resistance levels. If the technical indicators can avoid getting overbought, then we can expect the market to continue higher.
On the other hand, if the technical indicators stretch into extreme overbought territory as the S&P bumps into resistance, then be on the lookout for a reversal.
Gold and Gold Stocks
Gold traded lower overnight – down almost $20 at one point. It has, however, bounced well off of the lows.
For the most part, gold stocks have been under-performing the metal lately. That’s a sign of caution. Also, the Commercial Trader net short interest is back over 200,000 contracts. That’s another caution sign.
You see, Commercial Traders are the “smart money” in gold. They have an uncanny ability to buy gold near the lows and short gold near the highs. A short interest of 200,000 contracts isn’t enough to sound the bearish alarms. But it’s a yellow light.
Most of the charts in the gold sector don’t have tradable patterns yet either. So I wouldn’t mind seeing the sector pull back some over the next week or two and give us a better chance to buy.
Elsewhere
High Yield Bonds (HYG) continue to trade well. HYG looks like it’s breaking out of the ascending triangle pattern I showed you last Wednesday. Here’s an updated chart…
HYG is a leading indicator for the stock market. So if HYG breaks out to the upside, then it supports a rally in the S&P 500 up to the 2385 level.
I’ll update regular readers on these trends throughout the day on Jeff Clark Direct.
Best regards and good trading,
Jeff Clark
P.S. I love to hear your feedback. Send your comments and questions to me right here.