The S&P 500 Index is showing a familiar pattern to previous moves off sharp low points.
This pattern starts with an oversold technical bounce and is followed by a month or two of sideways action and then a new leg higher.
This “pullback” we experienced in June was masked by continued strength in large-cap tech names – though the Dow and Russell 2000 showed deeper declines.
The Dow Jones Industrial Average is forming a golden cross this week on its 10-week and 40-week exponential moving averages. The Russell 2000 Index is only a week or two away from its own long-term bullish crossover signal. Both golden crosses would join the S&P 500 and Nasdaq 100.
These patterns suggest we may see much more upside for stocks in the coming months – even if we experience short-term reversals.
Gold is moving higher due to weakness in the US Dollar. That said, gold is dropping sharply versus Silver, a metal with more industrial uses that reflects growing economic growth expectations.
See further commentary below today’s video.
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Stock Market Outlook (Video)
Long-term bonds still haven’t unwound much of its strong move higher off its October 2018 lows. Unwinding the safety trade should also provide a tailwind for equities in the coming months.
Despite the occasional outperformance by the smaller sectors in the S&P – Energy, Industrials and Financials, the leadership continues to come from cyclical areas like Technology and Consumer Discretionary. This should continue to be case until the long-term trend matures and there’s more of a significant shift towards value areas.
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