It has been a pleasant week for stocks, and if the debt ceiling issue gets resolved without an excessive amount of hassle, we could see further rallying. It goes without saying, however it’s so much easier to earn a living when the S&P 500 (SPY) goes up, even when our portfolio is less correlated than large caps to the broad market. That said we still made additional changes to the portfolio this week to arrange ourselves for what’s ahead. Read on to get my latest tackle the present market conditions and where I feel it heads next….
(Please enjoy this updated version of my weekly commentary originally published within the POWR Stocks Under $10 newsletter).
As I discussed above, stocks are looking so much stronger this week. While the debt-ceiling is the first issue to investors, the chances are that it would get resolved before any form of actual default happens.
Once the self-inflicted drama passes us by, the main target will return to inflation, Fed meetings, and other economics news.
The summer tends to decelerate when it comes to market motion. Nonetheless, this yr could also be a bit different because the summer FOMC meetings might be closely watched.
As I said last week, I prefer an even bigger picture of market conditions fairly than day after day moves.
The S&P 500 (SPY) has had a pleasant week to date, but as you possibly can see within the chart above, we aren’t even 2 standard deviations from the 50-day moving average.
Obviously, this does not imply the rally will proceed. Nonetheless, we also have not seen a pointy enough move higher to necessarily expect a bout of profit taking before the weekend.
Economics and earnings news were fairly uneventful this week. Walmart (WMT) posted stronger than expected results, raising profit and revenue guidance for the yr.
Retail sales numbers were also solid for the month of April. All in all, the buyer spending picture still looks positive.
With the economy remaining resilient, it’s difficult to say whether the Fed will raise rates at the following meeting (in June).
The market is about 65% sure they will not raise rates, but that would change pretty quickly based on latest economic data.
I do not think we’d like one other quarter point rate hike, however the Fed generally doesn’t ask for my opinion.
A brush with default (the debt-ceiling stuff) could change the Fed’s mind, but once more, I do not expect an actual default to occur.
The drop in the worth of gold below $2000/ounce, seen above, could also be an indication that investors are less concerned about being in safe-haven investments.
The VIX (the market volatility index) also continues its slow trend downwards. The VIX may have short-term spikes based on one-off news events.
Nonetheless, its general direction in most years goes to be down or sideways (depending on what sort of yr we had previously).
You possibly can see that the VIX is approaching 16. That suggests roughly a 1% move per day in stocks. Under 15 is usually considered a low-volatility environment. We may get there this summer, assuming nothing crazy happens with the debt-ceiling or the Fed.
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All of the Best!
Jay Soloff
Chief Growth Strategist, StockNews
Editor, POWR Stocks Under $10 Newsletter
SPY shares . Yr-to-date, SPY has gained 10.04%, versus a % rise within the benchmark S&P 500 index through the same period.
In regards to the Creator: Jay Soloff
Jay is the lead Options Portfolio Manager at Investors Alley. He’s the editor of Options Floor Trader PRO, an investment advisory bringing you skilled options trading strategies. Jay was formerly an expert options market maker on the ground of the CBOE and has been trading options for over twenty years.
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