Last week, the market shifted back into gear and put up consecutive new all time high for the DJIA, DJT, and the SP500, while the Nasdaq 100 put up consecutive new multi-year high. Although the Russell 2000 failed to put up any new high, it did reverse its recent downtrend by putting up a higher high and higher low price pattern. The market breadth also show some improvement with the advance/decline rising and the new high/new low expanding. Does this mean the market is back on a long term uptrend? Before trying to answer that question, let’s first look back to see how we got here.
On March 23, 2014 we started to sense the market was shifting from growth & small cap stocks toward value and big cap stocks. We saw many high flyers and small cap stocks in the Nasdaq and in the Russell fell more than 20%. After a brief dead cat bounce, the market was back on course and resume to the downside in the first half of April. On April 20, I put up a post highlighting the DJIA is setting up to make an attempt to put in a new all time high. Some would probably say “Are you crazy?” to even consider a new high from DJIA after it has given up more than 546 points in six days. Ten days later near the end of April, the DJIA made a new all time high and we asked “What does this mean?”
As May begins with the talking heads toss out the typical cry of “Sell in May and go away”, the big cap continues to grind higher, the market continues to diverge and divided between the growth/small cap and the value/large cap stocks. In our stock watch, some of the big cap momentum tech stocks such as AAPL, GOOGL, AMZN, FB, TWTR and TSLA were showing sign of a possible bounce. As these stocks bounced off their recent low, the SP500 and the DJIA made another new all time high followed by a bearish evening star candle pattern. It was no surprise to see the DJIA make another new all time high as the DJT was continuously making new all time high. But the thing that changed the state of the market was the reversal that has occurred in the last two hours of trading on May 16, 2014.
Just as the market was about to make a break toward the downside, it made a changing move back toward the upside. The Nasdaq was starting to break some of the previous resistance pivot levels and the Russell 2000 showing some strength by closing up on consecutive days and putting distance between its recent low. During the end of the May window dressing, one can sense the fear is notching up as the market continues to move into new high territory. On one side are those that fear how badly this market will end as market fails to consolidate its gains, and on the other side are those that fear the train is leaving the station without them.
After the month of May finished with a strong note, June begins with some market moving events. First up was the AAPL WWDC conference at the beginning of the week, then follow by the ECB rate decision on Thursday, and capped off the week with the U.S. Jobs Report on Friday. Preparing for possible pullback ahead of these events was the first order of business in order to avoid being ambushed if the market moves adversely from any one of these events. As the WWDC conference ended, AAPL rally into the mid 600, and after ECB announced their decision to have anyone that want to deposit their EURO have to pay for the privilege (sarcasm for negative interest rate), I tweeted out some of the day’s observations highlighting some of the positive price movements. Finally, after the market digested the Friday jobs report, all the major market indices put in new high with the exception of the Russell 2000. But, the last two trading sessions, the Russell 2000 was the outperformer with more than one percentage gain in both sessions.
And here we are. What's next? From last week’s price actions, one can sense and feel the acceleration of the upward price move. This could be due to those that fear being left behind rushing into the market at any cost, and those that fear how badly it will end simply capitulated and dive in believing they will know when the top is made such that they will not be a bag holder.
As you might recall, I have mentioned numerous times that the market does not look like a top have been formed because it lacks the price spike. A market top always precedes by a price spike. Some call this price spike a climactic top, a euphoric move, or a blowout. Whichever one of these adjective you wish to use to categorize the final phase of a long term uptrend that is what this market appears to be entering. After this surge is completed, the market will sell off and then make a last effort to put in another high, and when it fails that is when the top has been made. Until then, staying with the trend as long as it last and be careful not to get caught in this euphoric phase. No one knows how long this phase will last. One thing I know for certain is the market always driven by fear and greed!
