Early Summer Rally - Midweek Update

The market may be setting up for an early Summer rally. We believe that this will be a typical low-breadth, low volume Summer rally, as we mentioned last week here. Notice that Smart Money is placing their bets early.

Meanwhile, breadth remains weak. With weak breadth it’ll be easier to Make Money with ETFs vs. individual stocks.

The S&P 500 (SPY) remains above the 9 EMA despite the recent profit-taking in semiconductors. This minimal pullback tells us that there are willing buyers, probably the Smart Money expecting a Summer rally. Furthermore, rotations have stabilized the market. RSI is still above 50, as the MACD and CCI are above 0, telling us that the uptrend is intact. The Stochastics indicator tells us that it may be the Bulls’ turn to run soon. The cycle bracket renewed on 6/21 with minimal downside, thus upside is expected to mid to late July.

The Nasdaq 100 (QQQ) has a similar look to the SPY, as it remained above the 9 EMA and has an oversold Stochastics reading. The cycle bracket renewed on 6/20 with a small pullback. It appears to have stabilized on the 9 EMA. A new up-cycle is possible until mid to late July.

The Russell 2000 (IWM) definitely looks weaker as it is below all moving averages. This is another confirmation that the upcoming Summer rally will probably be a low breadth one. the cycle bracket renewed on 6/21, but it did not change the complexion of IWM. Thus far IWM is expected to continue its channel lower.

India (INDA) continues higher on it’s post-election rally. Notice that the rally began near the time that the cycle bracket renewed on 6/5. Although INDA is trending higher on the 9 EMA, it may be wise to tighten stops as it is approaching the tail end of the half-cycle bracket, where some give back is possible. The half-cycle bracket renews on 7/3 and another leg may begin at that time.

Germany (EWG) is on a downtrend below all moving averages. RSI, MACD and CCI confirm the downtrend. The Stochastics indicator points to another leg lower shaping up. The cycle bracket renewed on 6/21 but did not change the complexion yet. On the bright side there appears to be a good amount of buying volume occurring.

Consumer Discretionary (XLY) started an uptrend as it’s cycle bracket renewed on 5/30. It is now on an uptrend above the 9 and 21 EMAs. The RSI is not overbought yet as the Stochastics gear up for another leg up.

Our cycle chart points to a new up-cycle beginning on 6/26, lasting until around 7/9.

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