How High Can This Market Fly?

How High Can This Market Fly?

Posted On June 3, 2020 2:38 pm

In what has become one of the most perplexing rallies the major stock indices have now posted their best two-month performance in 30 years.  The gains have now cemented recovery from one swiftest and sharpest bear market on record.

Indeed, by almost any measure of definition, we have either resumed the long term uptrend and/or embarked on the new bull market as the “Nasdaq 100 (QQQ)” has just hit a new all-time high and  “SPDR S&P 500 (SPY – Get Rating) is just 7% from its highs.

There are many people, myself included, that having a hard time reconciling the terrible economic and social news with stock market performance.  We’ve already discussed there can be a persistent disconnect between Wall Street and Main Street but it seems hard to trust the sustainability of this rally. But instead of trying to reach for explanations, I tend to turn to the charts for trading purposes and have a saying when in doubt, zoom out.”

Meaning I turn to long-term charts which makes it makes it impossible to ignore the primary trends. As mentioned above we just closed out one of the best two-month gains ever so I figured it was a good time to zoom out and look at the monthly SPY chart.

As you can see major long term uptrend that began in 2009 remains intact and the recent sell-off was not only extremely brief but relatively modest compared to the financial crisis and the dot.com bust in 2000 that turned into a 3-year long bear market.

One of the complaints or causes for skepticism during the first phase of this rally was that being carried by just a handful of mega-cap tech names such as “Microsoft (MSFT) and “Apple (AAPL)” but over the past week or two there has been a distinct expansion of participation which has resulted in healthier market breadth.

In fact, the list of sector ETFs hitting all-time monthly highs, while still heavily leaning towards technology it is growing and becoming more diverse.  It includes:

  • Technology Index $XLK
  • Semiconductors Index $SOX
  • Communications Index $XLC
  • Internet Index $FDN
  • Healthcare Index $XLV
  • Biotechnology Index $XBI $IBB
  • Medical Devices Index $IHI
  • Software Index $IGV
  • Cloud Computing Index $SKYY
  • Online Retail Index $IBUY
  • IPO Index Fund $IPO

The question now becomes… Continue reading at StockNews.com

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.

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