Stocks jumped higher this afternoon as the bullish breakout got underway. The Dow, S&P, and Nasdaq Composite all climbed in a tense trading session that saw the market temporarily dip lower before recovering.
Tesla (NASDAQ: TSLA) led the way with an eye-popping 9.79% gain in response to earnings, reported after the close yesterday. TSLA beat on EPS but missed slightly on revenue. Vehicle deliveries also dropped quarter-over-quarter.
But bulls didn’t care. The EPS beat was seemingly good enough to warrant some major post-earnings buying. And that enthusiasm spread to other Big Tech names, which dragged the general market higher as well.
“What you’re seeing in the market today is continued potential recovery, some continued potential optimism for numbers not being as bad as feared,” said Upholdings portfolio manager Robert Cantwell.
“But that’s been happening in the market now for almost a month.”
The S&P (as represented by the SPY) broke out above resistance (yellow line) with greater intensity today after barely crossing above it in the trading session prior. Yes, the index is now above the upper Bollinger Band and the stochastic indicator suggests that the general market is overbought.
But having broken resistance and three major moving averages (10, 20, and 50-SMAs), a case could certainly be made that the S&P is entering a longer-term bear market rally.
That could change, however, if the Fed continues raising rates and reducing its balance sheet. Amid the afternoon wave of bullishness, at least one analyst was able to keep his cool.
“If overall financial conditions keep tightening on the current path, then that means that macro fair value for US equities will continue to trend lower,” explained Huw Roberts, head of analytics at Quant Insight.
Until the next FOMC meeting wraps up on July 27th, though, stocks may have more room to run higher.
Gold could climb higher, too, after establishing bullish divergence on the stochastic indicator (a higher low) relative to GLD’s price action (a lower low). GLD also bounced off support from May (not pictured) at $158.00 last week, and today, closed above the 10-day moving average just barely.
Plus, if the Fed sticks with a 75 basis point rate hike at its next meeting as expected, it could be argued that gold should rally. And, in all likelihood, the Fed will stick with a 75 bps hike.
For those reasons, it might make sense to take GLD long with a trade trigger of $161.91, above today’s high, as the general market seeks to extend its recent rally alongside gold, which just started climbing again after encountering support.
