Ralph Acampora Technical Analysis Market Letter - July 2013
Before I get into the body of this month's market letter, it is imperative that I date and list a series of headlines that dominated the global environment during the May/June period. Taken collectively, these events caused a nasty correction that set the stage for what I now believe is the next leg up in our “secular bull market."
May 22nd - Bernanke touts benefits of FED easing - as a result, global markets dropped sharply.
May 25th - FED minutes were open for tapering - resulting in a strong US Dollar and conversely very weak commodities & interest rates.
May 28th - Riots in Turkey against Prime Minister Tayyip Erdogen.
June 6th - Obama meets Chinese President Xi Jimping - discussions about cyber-security are clouded by Edward Snowden's defection to Hong Kong with his embarrassing leaks.
June 10th - S&P revises US credit outlook to 'stable' from 'negative' because Congress avoided the 'fiscal cliff' - this good news lasted less than a day because Central bankers began 'cooling' their commitment to money pumping - global markets plummeted.
June 16th - Putin warns Washington not to arm the Syrian rebels.
June 19th - Dow plunges 200 points when Bernanke talked about "easing up on the pedal and not hitting the brakes".
June 21st - US Treasury yields at nearly 2 year highs - strong US Dollar again negatively impacts commodities and precious metals.
June 22nd - Bond market is at the epicenter of the financial earthquake. Long-term interest rates rise 0.4 percentage points for the week - the biggest move in more than 10 years. Investors pulled $15 billion out of taxable bond funds in the first 3 weeks of June - the biggest 3 week outflow since October 2008. Global equity markets lost $1 trillion on Thursday alone. Edward Snowden landed in Moscow from Hong Kong.
June 25th - Upbeat US economic outlook: durable goods rise 3.6% in May; single family home prices post largest gains in 7 years; new home sales near 5 year high in May; consumer confidence +81.4%. The Dow bottoms and rallies 149 points.
June 29th - Protests in Egypt - 22 million sign for President Morsi to quit.
Volatility
It is eye opening to re-read the headlines that had investors spellbound during late May and all of June. These events caused the Dow Jones Industrial average to experience 16 triple-digit up and down closes! Yet, despite all of this scary news, the Dow lost only 991.13 intraday points or a mere 6.37% between its May 22nd intraday high and its June 24th intraday low. And, when this first quarter finally ended, it was the best quarter since 1999. That's unbelievable! For me, the most important headline was flashed on June 25th - this positive US economic news set in motion this year's 'summer rally' season. As defined, it is: "the market's low made in May or June and its peak registered in July, August or September. If the summer rally extends into September, then it bodes well for a strong market at year-end". That's what happened last year and I believe that it will be repeated this year. But, what's even more exciting is something I mentioned in my May Market Letter: the 'belief and trust' phase of this secular bull market will commence when secondary stocks take the lead. Well, on July 8th, the Russell 2000 (mid-cap, secondary issues) was the first major market index to score an all-time new high; several days before the popular large-cap blue-chip averages, the Dow Jones Industrial and S&P 500.
Sector Rotation Is the Life-Line of Every Bull Market
During the May thru June decline the ten S&P Sectors dropped: Utilities -13.61%; Telecom -10.28%; Energy -9.2%; Material -9.2%; Financial -8.69%; Consumer Staples -7.86%; Health Care -7.83%; Industrial -7.44%; Technology -7.33% and Consumer Discretionary -7.1%. Historically, the ones that go down the least are usually the next leaders once the rally begins. As of this writing (July 21st), Consumer Discretionary (XLY), Industrial (XLI), Financial (XLF); Health Care (XLV) and Telecom (IYZ) are at new highs- they are the early leaders in this 2013 summer rally season. Energy (XLE) and Consumer Staples (XLP) are less than 1% away from their respective 2013 intraday highs.
The Tide Is Lifting All of The Boats
Joining the Russell 2000 mid-cap stocks into new high ground is the Russell 3000 (small-cap stocks). The combination of these two barometers gives meaning to the term "broad market participation or widening breadth". As they march into new high ground the bullish technicians have reason to cheer, knowing that we have a 'fully-in-gear' bull market - the blue chips are supported (but, in this case, are being led) by an army of individual stocks.
Conclusion
If you think that what I have written above is encouraging, well, I have one more technical positive. On July 18th, the Dow Jones Transportation average registered an all time new high; it re-confirmed the primary bull market, a la Dow Theory, and it officially ended the correction that began on May 22nd. Said another way: this primary bull market is absorbing negative headlines as it surges on rising momentum, broadening breadth and excellent leadership. And, this is all taking place within an environment of low inflation and low interest rates! Long-term investors - buy and stay bullish!
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