Trend Check with Tushar Chande

Relief from Trade Wars and Earnings Data Breathe Life Into Summer Rally


The summer rally gathered steam fueled by earnings reports, as expected in my previous two posts and the MWL session with Tom and Erin.  The index ETFs, SPY and DIA are trending strongly, even as mid-cap and small-cap ETFs (VTWO and VB) have slipped a bit.  Relief from trade wars with Europe helped push up industrial stocks.  However, the crackup in FB reminds me of the weakness in technology shares in late November / early December last year, perhaps an early sign that the rally may weaken once we are past the earnings season.

Chart 1: Index ETFs, SPY and DIA now have  Chande Trend Meter reading above 90, which means they are trending strongly.


Dow Breaks Out, NYSE Reaches Key Levels

The Dow 30 has finally begun to recover after Junker's visit to Washington which offered relief from trade war worries.   There is one last bit of resistance to overcome at 25,800.  The NY Composite Index has reached key resistance at 13,000, and I expect the market will continue to rally past this level.


Chart 2: As worries of a trade war with Europe simmer down, the Dow has bubbled up.


Chart 3: The NYSE Composite now must clear resistance at 13,000, even as it breaks from the prior pattern of support shown by the red uptrend lines.


Trend Check Carpet

The major indexes are all bullish over the short-term and medium-term time periods.  Except for the Dow and NYSE (which are lagging), the rest of the indexes and key ETFs are all bullish even on the intermediate-term and long-term periods.  This chart shows how the summer rally has moved the trends across time periods into the bullish column.


Chart 4: The trend-check carpet covers time periods from 25- to 200-days (from top to bottom), doubling at each step.  Index and ETF breadth increases from left to right, from 30 to over 2000 stocks.  Thus, we have a comprehensive summary of the overall trend status in the market.  Note how all indexes are bullish in the short and medium time frames.  Trade wars have dampened industrials over the intermediate to long-term, as seen by the neutral status of the DJIA and NYSE.


Looking Ahead

Earnings will be on tap for at least the next 2-3 weeks, allowing the market to focus on company fundamentals, instead of worrying about headlines.  Forward guidance by companies will play a key role in how traders digest the earnings data.   So until summer doldrums arrive, we have rally on our hands.


Chart 5: The S&P 500 has reached the top of its uptrend channel, and is reaching my price targets near 2855.  We have broken the arched price pattern, and only the upper bound of the trend channel offers resistance, along with the old highs.


Tushar Chande
About the author: , PhD, MBA, is the inventor behind an impressive collection of technical indicators, including the Aroon and Stochastic RSI. He has written several books, holds both a PhD in Engineering and an MBA in Finance, and has over two decades of experience trading the financial markets. Follow Tushar in this blog as he highlights his new "Trend Meter" indicator and shares his analysis of current market conditions. Learn More
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