Summary: As of last Friday, equities rose for a fifth week in a row. In many important ways, the current uptrend does not fit the profile of a bear market rally. That means that further gains lie ahead and a return to the February low is unlikely. On a shorter timeframe, there are several compelling reasons to expect a retracement of recent gains in the days ahead.
Equities continued to rally for the fifth week in a row. SPY has risen 11 of the past 14 days. SPY, NDX and RUT all gained over 1% for the week. Emerging markets gained 3%.
Safe havens—treasuries and gold—which had been in high demand during the sell-off in equities, also gained. Treasuries had sold off the past 4 weeks in a row but gained just over 1% last week. Gold was up just 0.3%.
Check out Technician: Bear Market Rally
Oil has been leading to the upside every week since the bottom on February 11. Last week it was up another 6%. Equities have gained 12% off the bottom; oil is up more than 40%.
The rally in equities is, for now, contingent on oil continuing to move higher. Should the rally in oil fail, it is very likely equities will sell off (enlarge any chart by clicking on it).
Crude has rallied back above its 50-dma, which has now started to rise. It is staying overbought (top panel). Last week's close was the highest in 3 1/2 months. This remains very constructive action. The next test will be the 200-dma near at , which was also an important pivot level September-November.
This post is divided into two sections. The first section describes the intermediate term trend in US equities, with the conclusion that the uptrend does not fit the profile of a bear market rally (meaning, further gains are ahead). The second section describes factors facing the next week and reasons to be cautious short-term.
