Rally Overbought | Technical Analysis | Morning Star Candlestick Pattern
The strong bull rally that started in early June with one of our favorite bullish candle reversal patterns is starting to get a bit extended. The morning star or “blended morning star” consists of a big down day (or several) followed by a doji or hammer, and it finishes with a big up day (or several). June 1 was a 2.5% down day, June 4 was a hammer hold day, and June 5/6 provided a 2.8% up move. It was a “classic blended morning star” reversal of the downtrend.
The close on Tuesday was at 1,374 on the S&P 500 which is well above its 20 and 50 SMA. We are expecting a pullback to relieve some of the overbought state in the short term and a move closer to the 50 SMA near the 1,350 level (using technical analysis). The markets remain in a very choppy trading range between 1,300 and 1,400 since the downturn in early April.
Technical Analysis – Morning Star Candle Pattern – Strong Reversal Signal
Investors will briefly turn back from Europe to the US jobs number on Friday which is expected to be disappointing. The projection is a net add of around 90,000 jobs. It includes an increase of 100,000 private sector jobs and a loss of about 10,000 in the government. The US’s slow growth scenario was reiterated on Monday after the ISM report showed manufacturing contracted in June for the first time in 3 years.
Remember that the EU Summit Proposal still has several big approval hurdles to overcome before being official and any hint that the proposal might not pass as intended could send the markets reeling again.
We expect tomorrow to be a flat to down day and Friday to show weakness on the jobs number going into the weekend. After such a big move up from early June, an overdue pullback is likely before attempting any move higher towards 1,400.
Power Stock Picks (July 4) – Technical Analysis – HOT Long Stocks:
Because of the choppy markets, we are continuing to trade both sides. However, tonight’s picks will be all longs. In addition, we are now including hold time designations for those stocks that could be held longer than a week or two if the market stays bullish.
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 but a bit extended right now.
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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