{"id":28062,"date":"2014-07-01T09:23:41","date_gmt":"2014-07-01T13:23:41","guid":{"rendered":"http:\/\/www.ino.com\/blog\/?p=28062"},"modified":"2014-07-01T09:23:41","modified_gmt":"2014-07-01T13:23:41","slug":"why-the-bull-market-may-not-be-finished-yet","status":"publish","type":"post","link":"https:\/\/wwwtest.ino.com\/blog\/2014\/07\/why-the-bull-market-may-not-be-finished-yet\/","title":{"rendered":"Why The Bull Market May Not Be Finished Yet"},"content":{"rendered":"

By: John Kosar of Street Authority <\/a><\/p>\n

The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy <\/span>Nasdaq 100 and small-cap Russell 2000 were the strongest performers. As long as the May trend of relative <\/span>outperformance by these two market-leading indices continues, so should the current broad market advance.<\/span><\/p>\n

The two strongest market sectors last week were consumer discretionary and utilities. My own asset-flow based metric shows that the biggest increase in sector bet-related assets over the past one-week and one-month periods was in utilities, which supports more upcoming strength in this sector.<\/p>\n

A strengthening utilities sector is often driven by declining long-term U.S. interest rates, which we saw last week as the yield on the 10-year Treasury note declined by 9 basis points to 2.53%. This encourages yield-seeking investors to accept more credit risk (via utility stocks) in exchange for potentially higher returns. Therefore, as long as long-term interest rates continue to decline, it should drive more investor assets into utilities and buoy Treasury prices, which move inversely to yields.<\/p>\n

Small Caps, Tech Should Continue Leading the Way<\/strong>
\nIn the May 19 Market Outlook, I pointed out that the Russell 2000 had tested and held major underlying support at 1,083, saying: \"As long as the Russell remains above it this week, I would view this level as a potential springboard for a new leg higher in the overall market.\"<\/span><\/p>\n

Two weeks later, in the June 2 Market Outlook, I noted that the Russell was testing minor overhead resistance at its 50-day moving average, then at 1,137, following a 6% advance. I said, \"It must make a sustained move above this minor trend proxy to clear the way for more near-term strength.<\/p>\n

The chart below shows that the Russell has since broken 1,137 resistance and has also risen above 1,163, the 61.8% Fibonacci retracement of the index's March 4 to mid-April decline.<\/p>\n

\"\"<\/p>\n

Since rebounding from 1,083 support on May 15, it has advanced 10%, while the positively correlated SP 500 has coincidentally risen by 5% during the same period. According to retracement theory, the Russell is now clear for an eventual retest of the March 4 high at 1,213.<\/p>\n

In the April 28 Market Outlook, I pointed out that Google (NASDAQ: GOOGL<\/a>) <\/strong>was positioned right on top of major support at its 200-day moving average and showed that previous instances of this had coincided with important bottoms in the stock in October, September and April of 2013. In that report I said that GOOGL's reaction to $516 would be viewed as a coincident or leading indication of the upcoming direction of the Nasdaq 100.<\/p>\n

GOOGL has risen by 12% in the two months since then, and recently exceeded the 61.8% retracement of its March 7 to April 28 decline at $572.<\/p>\n

\"\"<\/p>\n

Like the situation in the Russell 2000, this clears the way for additional strength in <\/span>GOOGL and an eventual test of its March 7 high at $613. The positively correlated <\/span>Nasdaq 100 has coincidentally risen by 9% during the same period.<\/span><\/p>\n

Since technology and small-cap stocks typically lead the broader market both higher and lower, these two charts suggest the potential for more near-term strength in the SP 500.<\/p>\n

U.S. Treasury Prices at a Key Decision Point<\/strong>
\nIn the June 16 Market Outlook, I wrote that the <\/span>iShares 20+ Year Treasury Bond (NYSE: <\/span>TLT<\/a><\/strong>)<\/strong> was testing its 50-day moving average as support while oversold. I said: \"I view this as another potential near-term buying opportunity... as my work currently suggests the potential for U.S. 10-year Treasury yields to decline below 2.4% between now and year end as long-dated Treasury prices continue to rise.\"<\/span><\/p>\n

TLT bottomed three days later on June 19, rose 3% into Friday's high and is retesting formidable overhead resistance at $114.62. As you can see on the chart, similar monthly oversold conditions coincided with near-term bottoms on March 7 and Dec. 31.<\/p>\n

\"\"<\/p>\n

TLT's current position just below $114.62 overhead resistance and just above underlying support at the 50-day moving average, currently at $112.01, sets up an important decision point for the ETF from which its next significant directional move is likely to begin.<\/p>\n

A sustained rise above $114.62 would clear the way for more strength, and would support our current expectations for a decline back to the 2.4% area in the yield on the 10-year note. Conversely, a decline back below $112.01 would clear the way for more weakness and a potential retest of major support at the 200-day moving average, currently at $107.46.<\/p>\n

Putting It A<\/em>ll Together<\/strong>
\nIn last week's Market Outlook, I said, \"Frothy investor sentiment warns of the market's vulnerability to a meaningful third-quarter correction.\" That situation has not changed and continues to warn of a pullback\/correction between now and Labor Day, one that could be particularly nasty considering that the stock market has essentially moved straight up since November 2012.<\/span><\/p>\n

However, as long as market leaders like the Russell 2000 and Google continue to rise and\/or outperform the SP 500, it is too early to assume that a top is in place and a correction is imminent. Finally, keep an eye on TLT this week, as a strong rise in long-dated U.S. Treasury prices could represent a subtle defensive shift by investors that eventually leads to a stock market correction.<\/p>\n

In the past year, Street Authority recommendations on individual stocks have gained +72%, +26% and +60% all in less than six months... and recently, their trades could have made you +26% in 42 days and +42% in less than one month. Click here to get the free trading advisory -- Trade of the Week. <\/strong><\/a><\/em><\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

By: John Kosar of Street Authority The major U.S. indices were mixed last week, closing on Friday just slightly on either side of unchanged. The tech-heavy Nasdaq 100 and small-cap Russell 2000 were the strongest performers. 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