Positive EU Summit Surprise | Bull Rally
Finally, the EU Summit meeting of top European leaders produced a significant short term solution that could have some staying power with a bull rally for investors. It may only provide a bull rally for a week or so but this temporary patch seems more significant than just a Spanish bank bailout package.
While the usual details are lacking and the official votes are yet to come, the EU Summit produced a very positive proposal. The high level result was a proposal to use “rescue funds” to ease Spanish and Italian borrowing costs without extra austerity measures and to recapitalize banks directly. And while Merkel of Germany tentatively agreed, the bailout scheme cannot come into effect without more Germany backing and additional compliance measures met by euro zone countries.
But the caution alert is still being sounded by many investors. Mohamed El-Erian, CEO at bond giant Pimco, was even more direct about his skepticism, cautioning investors not to get too excited about a deal in which “the road map to fiscal union, political union and banking union lacks details and lacks precommitment.”
Despite the skepticism, the news from the EU Summit reversed the negative fallout from the Supreme Court ruling and produced the biggest one day bull rally of 2012. The S&P 500 rallied from 1,330 at its 150 SMA up 32 points to finish at 1,362. It is now well above its important 50 SMA at 1,341 and also above its 100 SMA at 1,359. The day was a basically a high retest of the previous June 19th high at the same price level.
The next upside targets if the bull rally continues are 1,377; 1,400; 1,405; and then a 2012 high retest at 1,422. As for the support levels on more selling and choppy trading, look to 1,340; 1,330; and then 1,300 at the 200 SMA. It was actually a negative week after hitting a low of 1,309 on Monday until the huge Friday move up which included massive short covering.
As long as the market stays above its 20 SMA, 50 SMA, and 150 SMA, and the bulls are in control, the best bets are longs. It doesn’t mean that the up and down daily swings will subside but the bias is more bullish going into the week after Friday’s big surprise news.
After such a big move up to end last week, it wouldn’t be unusual to see a flat to slightly down Monday to digest some of the big gains before continuing the bull rally this week.
Power Stock Picks (July 1):
Tonight’s picks will be a reiteration of the picks from June 27th with the appropriate entry adjustments after late last week moves.
Because of the multiple big up and down daily market swings, we decided to pick both longs and shorts for swing trades for tonight’s power picks. These should work for the next week or longer.
Investor Notes:
MR recommends investors continue to remain cautious and lighter on riskier equities until after the longer term financial situation in Europe has more clarity. The short term is trending higher.
Gold and silver are starting to look more attractive after basing and oil is getting a short term pop that may last awhile into the summer.
The caution alert for retirement accounts and investors is still present and will remain for the foreseeable future.
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Good luck in your trading and investing,
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