Ready for the Summer Rally

#stock #market #rally #Summer


Globally, stocks staged a very strong performance YTD. Over the last 5 months, S&P 500 (SPY) is up by 12.35%, UK stocks (EWU) are up by 15.35%, while Europe (VGK) is up by 14.46%.

In the US, the stock market gains have been led by Energy (XLE) up by 37%, Financials (XLF) up by 29% and Materials (XLB) up by 21%.

Given the strong performance YTD, the Big Q is what to expect from the stock market during the Summer months June-August?

Based on the expected fundamentals and the technical set ups, we expect that stock will continue to rally this Summer into the Fall.

This Summer, we expect to see very strong economic data based on Y-Y comparisons. In fact, during Q-2, the US is expected to have peak economic growth, which is expected to continue to be strong going into Q-3.

Looking at small stocks (IWM).

Small stocks are up 15% YTD, but the gainers have been frontloaded in January in response to the expected US fiscal stimulus. Since small stocks have been ranged and the range breakout can lead to very sharp spike and the next leg North. Technically, IWM has just broken the 50-Dam MA resistance, a positive sign.

Similarly, technology has also corrected on 16 February due to rising US interest rates, and the tech-heavy ETF (QQQ) has also lagged with only 6% YTD performance. Technically, QQQ has also just broken the 50-Day MA resistance, and it’s approaching the all-time high mark and if breached could lead to the next leg up over the Summer.

A Black Swan

If taper tantrum comes sometimes this summer, all bets are off. However, given the low volume during the Summer months, the Fed is unlikely to signal taper tantrum during this frame. So it will likely wait for the Fall.

Have a happy weekend, Keep the Faith!