Stocks soared again this afternoon as the bear market rally just kept on rolling. The Dow, S&P, and Nasdaq Composite all gained on continued earnings optimism and stronger-than-expected economic data.
Tech shares led the way higher after the market opened flat.
The biggest surprise came from the July services PMI index, which showed a gain for the first time in three months. June durable goods orders and manufacturing also beat estimates.
St. Louis Fed President James Bullard fanned the bullish flames as well in a morning interview.
“As the chair said, we’re not in recession right now,” Bullard explained.
“With all the job growth in the first half of the year, it’s hard to say that there was a recession.”
Bullard then took the opportunity to mention that the Fed would continue to aggressively hike rates.
“We’re going to have to see convincing evidence across the board, headline and other measures of core inflation, all coming down convincingly before we’ll be able to feel like we’re doing our job,” he said.
Normally, stocks plunge when Bullard speaks. But the market just kept on climbing today.
The Nasdaq Composite is now trading well above resistance (blue line) at the June highs as a result. Back in late March, the tech-heavy index was in a similar situation. It broke resistance (yellow line) and climbed above the 50-day moving average after rallying strongly off a new low.
In April, however, the rally failed as tech stocks got crunched across the board. Does the same fate await the Nasdaq Composite this time around?
It could. Stocks certainly appear overbought in the short term, and even more so than they did in late March.
But, as the market has taught us repeatedly over the last few months, bear market rallies only end when they’re ready to. There’s always more upside potential with stocks still down significantly on the year.
That being said, once the good times end, the retracement lower should be vicious.
And things have already taken a turn for oil stocks, most of which cratered today in response to tumbling oil prices. ConocoPhillips (NYSE: COP) plunged, setting a lower high after closing below its minor bullish trend (yellow trendline) on Monday. This afternoon, the stock also closed below the 10-day moving average.
The stochastic indicator suggests the stock has room to fall, too. That’s not to say oil will stay down for long, though. It probably won’t.
But there’s a good opportunity for oil bears here that could last at least until COP hits support at the July low.
For those reasons, it might make sense to take COP short with a trade trigger of $89.53, below today’s low, as the general market looks to stretch out the bear market rally even further.
