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Positive Shifts in Primary Trend | Stock Market Investing
May was a big month in the stock market, though most people haven't noticed.
Bearish sentiment reigns. The market has seen below average volume (volume is the weapon of the Bulls); high levels of short interest (expecting lower prices); high levels of Bearish sentiment, and, low levels of consumer confidence. Not to mention recession, deficits, etc., etc.
On the other hand, low volume in a Bear Market is bullish and short interest, sentiment and consumer confidence are contrary indicators.
In fact, there are many positive signs. Consider the Primary Trend -- the position of the monthly (closing) price to the 10-month moving average. Major Indexes that closed out May at or above their moving average include:
- Emerging Markets (EEM)
- Nasdaq 100 (NDX)
- Developed Markets (EFA) - fractionally below
- Materials Sector (XLB)
- Energy Sector (XLE)
- Utilities Sector (XLU)
- Industrials Sector (XLI) - fractionally above
- Technology Sector (XLK) - fractionally above
- Small Cap Stocks (Russell 2000, RUT) - fractionally below
That left these indexes still in a Bearish Primary Trend: Dow Jones Industrial Average, S&P 500 (SPX), Financials Sector (XLF), Health Sector (XLV), Consumer Discretionary Sector (XLY).
It's important to note that during the 2000-2003 Bear Market, monthly prices closed above the 10-month moving average several times only to close sharply lower in the succeeding months. Given today's widespread Bearish sentiment, however, we may see a market rally into the summer.
Finally, consider the worst of it -- the Mortgage Finance Sector. While there's still no sign of a turnaround, it's not hard to see that this index (Philadelphia Mortgage Finance Index, MFX) may be bouncing along on a bottom. This chart and others are in Newsletter. Charts are courtesy of StockCharts.com.
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