Market Summary
The S&P 500 has enjoyed a four-session winning streak for the first time since last October. And for the first time since early January, the Dow Jones industrial average rose above the 17,000 mark while the S&P 500 ended a fraction below 2,000, levels that some traders see as psychologically important. The S&P 500 has gained in 10 out of 15 sessions since its February low and closed above its 100-day moving average for first time this year. Half of 10 S&P sectors - including energy, which had been severely beaten down - are now positive for the year. For the week, the S&P 500 Index advanced 2.7% while the Blue Chip Dow Jones Industrial Average rose 2.2%. The Nasdaq added 2.8% while the small cap Russell 2000 led the major indices exploding 4.31% for the week. Treasury prices have flattened. As confirmed in the chart below gold stocks are going even higher following raw gold settlement prices at the highest level in a year.
A standard chart that we use to help confirm the overall market trend is the Momentum Factor ETF (MTUM) chart. Momentum Factor ETF is an investment that seeks to track the investment results of an index composed of U.S. large- and mid-capitalization stocks exhibiting relatively higher price momentum. This type of momentum fund is considered a reliable proxy for the general stock market trend. We prefer to use the Heikin-Ashi format to display the Momentum Factor ETF. Heikin-Ashi candlestick charts are designed to filter out volatility in an effort to better capture the true trend. The orange line in the updated
chart below shows the uptrend continues with strong bullish momentum and plenty
of space for the move to continue further.
The National Association of Active Investment Managers
(NAAIM) Exposure Index represents the average exposure to US Equity
markets reported by NAAIM members. The blue bars depict a two-week moving
average of the NAAIM managers’ responses. As the name indicates, the NAAIM
Exposure Index provides insight into the actual adjustments active risk
managers have made to client accounts over the past two weeks. The current
survey result is for the week ending 03/02/2016. Fourth-quarter NAAIM exposure
index averaged 44.61%. Last week the NAAIM exposure index was 31.65%, and the
current week’s exposure is 54.44%. The current bullish move has inspired money
managers to come off the sidelines. Professional traders lifted the NAAIM
exposure index to the highest percentage of the year. Expect investors to
continue increasing equity exposure, as they understand the upcoming months are
historically the best for the stock market.
Trading Strategy
The bullish trend has been strong since the middle of February and strategists are cautiously optimistic the rebound will continue. Investors are counting on economic data continuing to support an improving economy, since upbeat reports in recent weeks have eased fears the United States may be headed for a recession. "If you were pricing this thing for a recession, you've got to take it back out," said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis. He added that the S&P 500 could test its high from May 2015, when it closed at a record 2,130. He and others are expecting data to continue to support the view that the United States will avoid a recession, though they said plenty could still derail the market."Expectations went too far on a recession expectation. That's why the market has rallied in the past two weeks. It's pricing out a chance of a recession,” said Jim Paulsen, chief investment officer at Wells Capital Management in Minneapolis. In the updated graph below “all systems are on go” as all the major S&P sectors are positive over the past 30 days. As recession talk subsides and potential Fed rate increases fall off the table investors are increasingly willing to take on more risk. In the graph below the best performing sectors are considered the highest risk equity classes. We are currently in the middle of what is considered the “best six months of the year” for the stock market. We like undervalued or oversold shares to bid on because the current bullish trend has more room to run.
By Gregory Clay
Investment Strategist
Click here to
gregoryclay@theoptionplayer.com
P.S. click on http://www.theoptionplayer.com/
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