The SPX and DOW have broken through resistance to new all time highs catching up to the Nasdaq as the Covid trade unwinds and rotation occurs. May is expected to be a two-sided month with a sharp move up and a sharp move down. We will cover the exact dates of reversals for our Gold Members. The third quarter should then usher in a sharp correction and reset sentiment in stocks with recovery seen into year end. Whether we see new highs remains to be seen.
The week’s key economic releases were mixed, with the job market especially sending conflicting signals. The JOLTS job openings estimate surged to a two-year high thanks to the reopening push, but the weekly number of new jobless claims and the total number of Americans on benefits remains high. The ISM services PMI followed the manufacturing measure’s lead, hitting its highest level since 2005 at 63.7 as the domestic economic outlook continues to improve across the main sectors. The FOMC meeting minutes and Fed Chair Jerome Powell’s speech at the International Monetary Fund’s (IMF) meeting confirmed that the Central Bank will not remove its supportive measures anytime soon, setting the stage for a potential boom in economic activity.
The short-term technical picture further improved thanks to the Nasdaq’s rally, and since the DOW and the S&P 500 both achieved new all-time highs, the positive long-term trends are firmly in place. The S&P 500, the DOW, and the Nasdaq are now all above their 50-day moving averages, and the benchmarks are also well clear of their 200-day moving averages. Small-caps showed notable weakness in the first part of the week, with the Russell 2000 clearly lagging behind its large-cap peers. But, thanks to its late-week bounce, the index finished above both its moving averages on Friday. The Volatility Index (VIX) hit a new recovery low, well below the widely watched 20 level, and should the fear gauge remain below its pandemic range, we could be in for more new records in the major indexes in the coming weeks.
Market internals deteriorated somewhat due to the weakness among small-caps, but the damage to most reliable indicators has been limited, and the measures continue to confirm the bullish trends in the major indexes. The Advance-Decline line eked out a new all-time high in wake of the Russell’s dip, as advancing issues outnumbered decliners by a 4-to-1 ratio on the NYSE and a 6-to-1 ratio on the Nasdaq. The average number of new 52-week highs increased on both exchanges, jumping to 108 on the NYSE and 71 on the Nasdaq. The number of new lows edged lower, falling to one on the NYSE and eight on the Nasdaq. The percentage of stocks above their 200-day moving average was little changed in the choppy environment, holding up just below the very high 80% level and closing the week near 78%.
We expect the number one asset class for the next four months to be the precious metals sector. It should outperform the market significantly.