Stock Market Outlook entering the Week of June 12th = Uptrend
- Short-term (20 DMA): Uptrend
All the major stock market averages remained above their 20-day moving averages.
- Intermediate (50 DMA): Uptrend
All of the major stock market averages remained above their 50-day moving averages.
- Long-term (200 DMA): Uptrend
All of the major stock market averages remained above their 200-day moving averages.
Last week started off well, but surrendered gains heading into the weekend. From a moving average perspective, the damage was limited. But unlike recent weeks, we added a distribution day to the tally, on account of Friday’s sell-off. OEW continues to indicate an uptrend.
I expect volatility over the next two weeks, as traders and investors try to protect themselves ahead of the ‘Brexit’ vote (whether Britain stays or leaves the EU) on June 23rd. To a lesser degree, but closer to home, the US Federal Reserve releases the latest bank stress test results on the same date.
Longer-term, I’ve noticed that the Dow Jones Utilities index has rallied strongly over the past 6 months. As a rule of thumb, a rally in the utilities average is typically associated with lower interest rate expectations for the months ahead*. I say ‘normally’ because rates are near zero in the US, so this could now mean that rates are expected to remain unchanged or even go negative.
*Energy projects require large amounts of capital. As rates fall, utility companies can borrow money at lower interest rates, which increases their ability to generate profit. When rates rise, profits from utilities are lower, and the utility average tends to fall in price.
Moving Average Signals:
- Uptrend=Market indexes remained above their moving average during the trading week
- Downtrend=Market indexes remained below their moving average during the trading week
- Buy signal=Market indexes rose above their moving averages during the trading week
- Sell signal=Market indexes fell below their moving averages during the trading week