The markets posted minor gains last week and made new highs but there was no real catalyst to propel them higher.
There are no obvious catalysts on the calendar for next week either. The job reports on Thr/Fri could move the market but they would have to be very positive and that could be a problem as well. If the numbers are too hot, traders would begin to worry about the Fed meeting on June 13th. They will begin to convince themselves the Fed could embark on a stronger rate hike program. If the numbers miss the estimates by a large amount, traders will begin to worry about a recession. Instead of having the jobs reports be a catalyst we need them to come in boring and right on the estimates.
The Fed Beige Book on Wednesday is not likely to be a market mover because it is a lagging report for April and the Fed always tries to maintain a level outlook and stress moderate growth.
The start of the ASCO conference on Friday could provide a boost to the biotech sector ahead of the event and that would help the Nasdaq and the Russell.
The Q1 earnings cycle is over and there are only a few stragglers left to report next week. These are not likely to be market movers.
The best catalyst could be the market itself. The S&P closed at a new high over the last two days but the Dow has yet to accomplish that feat. If the Dow could squeeze out a decent close over 21,115 it could energize investors to begin covering shorts and chasing prices. With the Nasdaq and S&P already at new highs, the addition of the Dow would be strongly market positive. The Dow is only 35 points below its high so a good 100 point day would do wonders for market sentiment.
The S&P closed at 2,415 and has no material resistance until 2,450. Stringing together several days of additional gains would be outstanding. However, the rebound from the prior week has already run for 65 points so it would not be unreasonable for a couple days of profit taking. The 2,400 level should now be support and would be a great springboard for a new leg higher.
There is nothing to say about the Nasdaq. It has led the rally since mid April and is showing no signs of slowing. The big cap techs are making new highs daily and Amazon and Google could both hit $1,000 per share on Tuesday. I am a little worried that the $1,000 level could generate a sell the news event on those stocks but hopefully it would be short.
The Russell 2000 is the weakest index and that is probably due to the rebalance coming up in June. Hedge funds are gaming the rebalance by selling the stocks they think will leave the index. There is also some worry that portfolio managers do not believe the rally is going to last so they are hesitant to put money in the low liquidity small caps. Time will tell.
I would recommend that we continue following the trend until it ends. We know the tech tally cannot last forever but we also know from past experience it can last far longer than analysts expect.
The risk to the markets this week is political. President Trump is back in Washington and the press have been working overtime this weekend trying to hype any story they can find in hopes of generating some kind of reaction. We know from experience when Trump is under pressure from the media, political firestorms tend to erupt. That could be the biggest cloud over the market this week.
Enter passively, exit aggressively!
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