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The Action to Watch on 5/8

After consolidating in a tight trading range for seven sessions, the S&P 500 broke out to the upside on Friday. With some help from a bounce in the oversold oil sector, the S&P closed just under 2400. Most technical indicators are neutral. So there’s plenty of fuel in the tank for even higher prices this week.

Here’s what to look for in the action today…

General Trends

After consolidating in a tight trading range for seven sessions, the S&P 500 broke out to the upside on Friday. With some help from a bounce in the oversold oil sector, the S&P closed just under 2400. Most technical indicators are neutral. So there’s plenty of fuel in the tank for even higher prices this week.

We’re still in earnings season. Lots of companies have yet to report. We’ll hear from a lot of retail, oil, and pharmaceutical companies this week.

For those just joining us, in the Market Minute we take a look at how the major markets are setting up and plan for our trading day. Starting with stocks…

Stocks

The major indexes all broke out on Friday. This should be the start of the final move toward an intermediate-term top in mid-May. Longtime followers may recall that back in February I suggested we’d see an intermediate-term top form in the S&P 500 around May 12.

It sure looks like we’re on track for that to happen.

My minimum target for the S&P is 2411. Though a strong rally could power the index as high as 2442. Let’s just keep a close eye on the various technical indicators as the market pushes higher this week. They’ll let us know when things are getting overheated.

For now, the bulls have the momentum. Oil stocks are bouncing off of deeply oversold conditions. High-yield bonds (HYG) continue to act strong (though there are some longer-term concerns creeping onto the chart – which we’ll look at later this week). Semiconductor stocks are also acting well.

All of these things are bullish and should lead to higher stock prices this week.

Gold and Gold Stocks

Despite the price of gold falling again on Friday, gold stocks had a good day. The VanEck Vectors Gold Miners Fund (GDX) recovered everything it lost on Thursday and closed up 2.1%. GDX has resistance at its 9-day exponential moving average (EMA) at $21.90 today. But if it can get above that level, then GDX could rally up to its next resistance near $22.70 later this week.

I’m not in love with the gold sector here in the short term. But it does look like the downside is relatively limited. And, if the broad stock market does top out later this week, then gold stocks should do well as the stock market declines.

Most of the damage has likely been done already in gold stocks. Traders can start building positions right here. But don’t jump in all at once. Try to take advantage of down days to slowly accumulate shares of quality gold companies.

Retail Stocks

The retail sector has lagged the market this year. While the S&P 500 is up about 5.2%, the SPDR S&P Retail Fund (XRT) is down about 2%. But there are some positive technical developments. Take a look at this chart…

The blue circles on the chart show the three times over the past year the 9-day EMA crossed above the 50-day MA on the XRT chart. This “bullish cross” often marks the start of an intermediate-term rally for the retail sector.

The previous two times we saw a bullish cross on XRT – last November and last July – the stock rallied for about five weeks and gained about 10%.

The recent bullish cross occurred almost three weeks ago. XRT has only gained 1% since then. So XRT has some room to run if it’s going to perform similar to the previous two bullish crosses.

There’s no guarantee XRT will rally, of course. But many big-name retail stocks are set to report earnings this week. Those announcements could prove to be the catalyst for a retail rally.

I’ll update Delta Report 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 any questions, concerns, or great trading stories to me right here.