Here’s what to look for in the action today…
After starting the week with a blistering two-day rally, the stock market has just chopped around for the past two sessions. We have to look at this as bullish action. Buyers are stepping up on even the slightest decline.
Despite numerous caution signs, the bulls have the momentum. New all-time highs are in sight.
If you’re new to the Market Minute, here I share my thoughts on how the major markets are setting up for the day… and some ideas for boosting your returns. It’s how I’m going to trade my own money.
Let’s see what’s happening with the S&P…
At the low of the day yesterday, the S&P 500 Index was down just four points. But that was enough to get some of the technical indicators to back off from their overbought conditions. And it allowed the negative divergence on the 15-minute S&P chart to play out.
(Negative divergence is when the price has a higher high, or a series of higher highs, but the indicator measuring the same price doesn't – instead it has a lower low.)
Here’s an updated look at that chart…
Even with such a small decline in the S&P 500, the MACD (Moving Average Convergence/Divergence) and RSI (Relative Strength Index) – two technical indicators that help measure overbought and oversold conditions – have cycled “back to neutral”. There’s enough “fuel in the tank” now to propel the market higher. And with the seasonal bullishness that’s typical of the market in early May, it’s hard to make a bearish argument2 right now.
Of course, we still have the potential for a Volatility Index (VIX) sell signal to develop over the next few days. And, there are some other caution signs – like the nearly overbought condition of the McClellan Oscillators and a few other technical indicators. So traders shouldn’t go nuts and buy every stock on the board.
But, some exposure to the long side is a good thing right here.
Traders who are looking to short stocks – and I’m anxious to do that too – should stay patient a while longer. I expect we’ll be able to short stocks at higher prices next week.
Gold and Gold Stocks
Gold stocks are looking slightly more attractive now than they were earlier in the week. The sector is quite oversold and probably due for at least a short-term bounce.
Take a look at this 60-minute chart of the VanEck Vectors Gold Miners Fund (GDX)…
GDX has been falling this week. But, the MACD momentum indicator has been rising. This “positive divergence” tells us the momentum behind the decline is reversing. This is often an early warning sign of an impending bounce.
The chart looked similar back in early March – just before GDX rallied 5% in only two days. A similar bounce this time around could push GDX back up towards the $23 level.
For the moment, I’m only looking for a short-term bounce in the gold sector. The daily chart of GDX doesn’t look as constructive. A few days of back and forth action would be helpful.
I’ll update regular readers on these trends throughout the day on Jeff Clark Direct.
Best regards and good trading,
P.S. I love to hear your feedback. Send your comments and questions to me right here.