The following is a summary of our recent Financial Sense Newshour podcast, which aired on Saturday here and on iTunes here.
Most of the major averages, including the S&P 500 and the Dow Jones, have been trending sideways except for the Nasdaq, led by tech giants Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Facebook (FB), and Google (GOOG).
Art Hill of StockCharts.com told Financial Sense Newshour that a major market reversal is unlikely but that investors shouldn't be suprised by a summer correction as the Fed prepares to raise rates again this June. Hill also shared his views on the US dollar, interest rates, commodities, and oil.
Tech Ahead, Markets Somewhat Flat
In terms of momentum, US technology stocks are dominant right now and investors are willing to pay pretty high multiples to own them.
“They have been the clear leaders, and they are helping to push the Nasdaq — and the Nasdaq 100 in particular — higher,” Hill said.
Similarly, the Dow had a surge in that November-December period, then moved flat into January, and experienced another surge from mid-January to the end of February and early March. It’s been flat now, Hill noted.
“I still think the bias is still towards the upside,” Hill said. “I haven’t seen any evidence to suggest we’re going to have a reversal here.”
The Dollar, Interest Rates, Commodities, and Oil
The dollar over the past 2 weeks has been hit, while the euro has been surging and the yen has been falling.
The 10-year Treasury has been flat as well, Hill stated, mimicking what we saw in the Russell 2000 since the big liftoff in November and the flatness from December.
Gold has been hit by the move we’ve seen in Treasury yields over the last 2 weeks, Hill noted. As Treasury yields moved up from 2.2 percent to 2.373 percent, the gold SPDR fell around 5 percent, and gold is showing itself to be very inversely sensitive to Treasury yields right now, Hill added.
Oil also broke down to $46 last week, but Hill stated this is due to supply issues — specifically, that supply is overwhelming demand, which is what the charts are telling us.
Fed Rate Hike in June
The Fed is widely expected to raise rates again in June and, in this timeframe, Hill expects we may see seasonal weakness from June to September come to bear, hampering stocks and possibly leading to declining markets.
“The odds do favor some sort of a summer correction,” Hill said. “Watch the charts first and foremost, because the seasonal patterns need to be put in the back of your mind.”
However, until we get a trend confirmation from the S&P, Hill is bullish. If the S&P 500 moves below its 125-day exponential moving average in June or July — which Hill likes to watch because it serves as an indicator in the medium-term timeframe — during the seasonally weak part of the cycle, he would take some money off the table and pull back.
“I think that would be a signal we’re getting a correction,” he said. “(Otherwise) I am of the opinion that the trend is in force until it’s proven otherwise. We don’t know how far or how long it will run.”
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