U.S. Stocks ended the week with another bang this week, continuing the run that began in March. The S&P 500 is now 37% above its closing low in March, showing gains in just about every week since its Bear Market nadir.
On Friday, stocks managed to rally in spite of an employment report that showed another 500,000 jobs were lost in April, and that the previous two reports were revised to show additional losses of 66,000. The unemployment rate stands at 8.9%.
However, stocks have been buoyed by better than expected earnings reports, some better news on the economic front, and a ho hum report on the bank stress tests. The problem is that while stocks have been rallying off of this Bear Market bottom, sentiment has turned bullish, long term Treasury yields have shot up, and the Dollar is getting pounded in the Forex markets. Commodity prices have also been on the rise, particularly the oil complex and agricultural markets.
In the long run, rising interest rates will make it difficult for stocks to go much higher. The 10 Year Treasury Note is now yielding 3.3%, nearly 80 basis points above its March low when the prices spiked in response to the Fed's $300 billion purchase announcement. That was a perfect sell signal for foreign investors looking to get out our Treasuries in the face of huge government deficits for the next ten years.
Nonetheless, you have to stay with the trend, which is solidly to the upside at the present time. We had a true selling day a couple weeks ago that was quickly negated by significant strength soon afterward. This market continues to be a traders market, so tread carefully. Long term investors should not be chasing stocks at these levels.
Scott Cole
www.theultimatestocktradingsystem.com
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