Why Are The Bulls Regaining Momentum?

By: Chris Ciovacco | Thu, Aug 14, 2014
Print Email

What A Difference A Week Makes

A week ago today the S&P 500 dropped 10 points bringing the weekly bearish tab to 15 points. Seven days ago, the only real positive was the potential support we noted on August 7 (see chart below).

$SPX S&P 500 Large Cap Index INDX

Putin Eases Some Of The Tension

Since August 7, the S&P held support and has rallied 45 points. What happened? While there are countless inputs influencing the decisions of billions of consumers/investors around the globe, one factor has been decreasing fear relative to the Russia/Ukraine conflict. More stress relieving news came Thursday. From Reuters:

Putin told Russian ministers and members of parliament in Crimea that Russia would stand up for itself but not at the cost of confrontation with the outside world, easing off months of tough rhetoric over Ukraine.

Possible Resistance For Stocks

The busy-looking chart below shows several areas of possible S&P 500 resistance between 1953 and 1958. A close Friday above 1958 would increase the odds of an ongoing rally in equities. It is not possible for stocks to push significantly higher without first closing above trendline C. Therefore, as long as the S&P 500 remains below 1958, we will exercise some short-term caution relative to our cash.

$SPX S&P 500 Large Cap Index INDX

Easy Central Bankers

On August 13, we outlined the "good news is bad news" theory. More supporting evidence for the Federal Reserve to keep rates low longer came in the form of a weaker than expected labor report Thursday. From Bloomberg:

Applications (INJCJC) for unemployment benefits in the U.S. rose more than forecast last week, interrupting a steady decline to pre-recession lows. Jobless claims climbed by 21,000 to 311,000 in the period ended Aug. 9, the highest in six weeks, a Labor Department report showed today in Washington. The median forecast of 48 economists surveyed by Bloomberg called for 295,000.

Financial markets love low rates. The European Central Bank (ECB) has data in hand to consider not only a continuation, but expansion of their easy-money policies. From The Wall Street Journal:

The euro-zone economy stalled in the second quarter, raising the ugly prospect that the region's recent weak recovery after its long debt crisis has already lost momentum as it faces fresh headwinds from Russia and Ukraine. Germany's economy shrank for the first time in more than a year, a development economists largely attributed to a mild winter that boosted activity in the first quarter at the expense of the second. The bigger concerns, they say, are France and Italy, where respectable rates of growth aren't even in sight.

Investment Implications - The Weight Of The Evidence

The tweet below from Thursday's trading session sums up the current state of affairs:

Therefore, our model is still calling for some S&P 500 exposure (SPY). We also have some folding money complimented by bonds (TLT). If the S&P 500 can close over 1958, our model will most likely call for an incremental shift from cash to growth-oriented assets. While we have not made any calls yet, our short list includes technology (IYW), healthcare (XLV), real estate (IYR), materials (XLB), Asia (AAXJ), and U.S. growth stocks (VUG). We will enter Friday's session with a flexible, unbiased, and open mind.



Chris Ciovacco

Author: Chris Ciovacco

Chris Ciovacco
Ciovacco Capital Management

Chris Ciovacco

Chris Ciovacco is the Chief Investment Officer for Ciovacco Capital Management, LLC. More on the web at www.ciovaccocapital.com.

All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors and tax advisors before making any investment decisions. Opinions expressed in these reports may change without prior notice. This memorandum is based on information available to the public. No representation is made that it is accurate or complete. This memorandum is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. The investments discussed or recommended in this report may be unsuitable for investors depending on their specific investment objectives and financial position. Past performance is not necessarily a guide to future performance. The price or value of the investments to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. All prices and yields contained in this report are subject to change without notice. This information is based on hypothetical assumptions and is intended for illustrative purposes only. THERE ARE NO WARRANTIES, EXPRESSED OR IMPLIED, AS TO ACCURACY, COMPLETENESS, OR RESULTS OBTAINED FROM ANY INFORMATION CONTAINED IN THIS ARTICLE.

Ciovacco Capital Management, LLC is an independent money management firm based in Atlanta, Georgia. CCM helps individual investors and businesses, large & small; achieve improved investment results via research and globally diversified investment portfolios. Since we are a fee-based firm, our only objective is to help you protect and grow your assets. Our long-term, theme-oriented, buy-and-hold approach allows for portfolio rebalancing from time to time to adjust to new opportunities or changing market conditions.

Copyright © 2006-2016 Chris Ciovacco

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com