The Market Is Right In The Middle Of A Turning Point…
As you may know, for the past few weeks I’ve been following the seasonal trends. And as I noted, it called for lower prices.
If you take a look at the chart below, you’ll see the seasonal trend in blue. The black candlesticks show what actually happened — the SPDR S&P 500 ETF (NYSE: SPY) rallied instead.
Old traders often say the best signal is a failed signal. That means when the price action moves contrary to a strong signal visible on the chart, we should expect a strong trend to follow. Despite numerous bearish signals on last week’s chart, we still got a strong “up” move.
Now, we should expect gains to continue.
At this point in the month, seasonals now also support additional gains. The dashed line in the first chart marks the start of this current week (June 28). Today marks the bottom of the seasonal trend, and from this point on, the indicator now points to a possible strong rally.
Momentum confirms that outlook. The next chart shows momentum as the stochastic RSI. This is the familiar stochastic indicator calculated with the relative strength index (RSI) instead of closing prices. It provides a smoother measure of momentum than the traditional calculation of stochastics and offers clearer signals than the traditional RSI indicator.
If we look at the bottom panel of this chart, we can see that stochastic RSI is bullish and rising, setting up a potentially strong rally.
Based on the recent consolidation highlighted in the next chart, the price target for SPY is about 3% above Friday’s close.
There are still risks in the market. My Income Trader Volatility (ITV) indicator, shown in the bottom panel of the next chart, remains near a “sell” signal.
ITV (red line) is crossing above its moving average (blue line). ITV is similar to VIX in that it rises as prices fall. Its current position, just above its moving average, points to potential weakness in stocks. If we get a clear and sharp move above, then this will go against the evidence we’re seeing right now for more gains.
Our last chart this week shows my Profit Amplifier Momentum (PAM), which may be pointing to a possible rally.
PAM is designed as a short-term indicator. The red bars are bearish, and the green bars are bullish. Last week, we saw PAM cross over to bearish territory as it continued its descent from its peak in early June. Since then, the downward momentum has weakened, and PAM is now near a bullish crossover — another potential indicator of strength.
I’ve been saying for weeks that the market is near an important transition. And now we’re seeing this play out. The indicators are leaning bullish, but there are still some reasons for concern.
My outlook is for a sharp rally followed by a bear market. We’ll play close attention to our indicators to get an idea of when that may happen. But for now, the rally appears to be tradable.
One of the best ways to trade right now is with the strategy we use over at Maximum Income. It allows you to continue holding the stocks we already own (or buy ones that you don’t mind owning right now) — but also generates immediate income…
As I’ve pointed out, this strategy is perfect for this market. We can remain active and worry less about the risks, while quickly responding to whatever the market throws at us. Plus, who doesn’t like more income? Even better, we also have the chance to repeat similar trades again and again, boosting our income even further…