rally on the fourth of july
rally on the fourth of july

A Rally Born on the Fourth of July

Wait a minute, was a rally born on the Fourth of July? Did the U.S. celebrate Independence Day or the Running of the Bulls?

Last week, the S&P 500 confirmed the Bullish phase, which means it closed 2 days above the 50-DMA.

  • Semiconductors (SMH) improved in phase to Warning by closing over its 200 DMA.
  • The Russell 2000 (IWM) and NASDAQ 100 (QQQ) continued to put their 50 DMAs in the rearview mirror.
  • Transportation (IYT) confirmed its improved Warning Phase, with a bit more gusto.

Even the Dow dog dragged itself back over the 200 DMA into an unconfirmed warning phase. Will all this good news, no wonder many see the firework explosions leading to more upside?

Yet, I still see some issues.

Therefore, as you wallow in the glow, ask yourself, what happens after the firecrackers turn to debris and leave a smell of gunpowder? If the market is ready for new highs, why are buyers still pouring into Utilities and T-Bonds?

Why did the US dollar ETF UUP fall to test critical support at 24.80 or the 200-week moving average? Why are cash-rich corporations taking their time on raising wages?

Wages rose 2.7% year-to-year, less than what economists expected. Meanwhile, inflation picked up. Should the rate of inflation surpass the rate of wage increases, folks will not feel so rich.

And, with the possibility of devaluing the dollar to make the idea of tariffs more palatable, that rate of change could become even scarier.

Furthermore, manufacturing labor is strong right now. Whether that will continue to grow has a lot to do with the impact of the tariffs going forward. Not to mention the dilemma, as I have pointed out repeatedly, it poses for the Federal Reserve should the economy slow down while inflation picks up.

Switching to the technicals. Sure, IYT and SMH improved in phases. But, they still went into a warning from distribution. Not bullish.

New buyers coming in after the literal redistribution into cash, could be the last ones in. Possible. That’s how fireworks go. Colorful, exciting, yet also dirty, smelly and dangerously flammable.

What to Expect?

S&P 500 (SPY) Confirmed bullish phase. Impressive how it cleared 274 and filled a gap to 274.49-now pivotal. Can it clear 280? Keeping an open mind.

Russell 2000 (IWM) If this had corrected harder I would actually be more positive. However, this looks ok here provided it holds over 165.50

Dow (DIA) Unconfirmed return to a warning phase. Makes 243.59 important pivotal support

Nasdaq (QQQ) This too filled a small gap making 174.69 pivotal and 172.35 the must hold a place.