chart courtesy of www.stockcharts.com
These past few weeks have shown a nice rally of all of the major market averages back to their 50 day moving averages. There has been an inverse correlation between market strength, commodities prices and the US dollar. We saw the dollar lose strength when the Federal Reserve toned down its rhetoric about raising interest rates. In response to these dovish comments we saw commodities rally sharply. Oil traded back above $40 per barrel. Energy and commodity stocks rallied sharply. As the Fed began their hawkish tone again we saw these rallies stall.
Pay particular attention to the 50 and 200 day moving averages on the above Dow chart. The market is making lower highs along the 50 day moving average. The MACD has also been showing a declining trend. There appears to be good support at the 14500 to 15000 level for now. Therefore we can expect to see some range bound activity between these two lines. This pattern should continue, most likely, through the summer months. This creates some really good trading opportunities.
If the 50 day moving average (Blue line) crosses below the 200 day moving average (Red line) this would be a bearish sign. Judging by outside events, and should the Fed decide to raise rates further, we most likely will see this pattern resolve to the downside. All these factors are set to converge as we approach a seasonally weak time for the markets. There should continue to be some buying opportunities on some great stocks. With some options trading opportunities in both directions. Or one might decide to add some great companies to your portfolio during periods of weakness. Many of the blue chip companies are paying dividends well above 2%.
Happy Easter everyone!
Disclaimer: The above is for informational purposed only. Any decision to buy, sell, or hold any specific investment should first be reviewed with your investment adviser.
