Broad market indices "played 'possum" on Friday by chopping around all session long in a tight range until the final 15-minutes of trading, where price action surged almost 2% higher before the closing bell. End of the month trading is always tough to gauge, as funds jockey for desired positions to print on their books. Regardless of the reason, the swift closing rally lifted all indices comfortably in to positive territory, and capped off a solid month of gains (+5%) for the benchmark S&P 500. The small-cap Russell 2000 and S&P Midcap 400 indices closed higher by 1.9% and 1.6% respectively. Dow Jones Industrial Average advanced 1.5%, the S&P 500 1.4%, and the Nasdaq Composite advanced 1.3%.
Turnover was tracking lighter than the prior session on both exchanges at 3:30 pm, however, the late day surge was accompanied by big volume, enabling both the S&P 500 and Nasdaq Composite to register another "accumulation day." Total volume in the NYSE was 10% greater than the previous day's level, while trading in the Nasdaq rose 17%.
With financials and tech stocks taking a break over the past few weeks, commodities have taken center stage due to recent breakouts in gold, silver, and crude oil (courtesy of a declining dollar). One of the first commodities to blast higher when the market bottomed was copper:
Copper ETF (JJC) broke out from a lower level base in March and rallied more than 30% before stalling out below the 200-day MA. Since then, JJC has consolidated in bullish fashion above the 50-day MA. Last Friday JJC closed above the downtrend line of the triangle pattern, and is poised to resume the strong uptrend in place from the March breakout.
Though the pure play in copper is through JJC, one could participate in copper's move while gaining exposure to base metals aluminum and zinc, via the Powershares DB Base Metals ETF (DBB). Throughout the year index weight will fluctuate, but the base weighting is 33% copper, 33% aluminum, and 33% zinc. The chart of DBB below shows the lower level base breakout at 13.00, followed by a successful test of the breakout pivot on 4/29, as it held above the 50-day MA. Volume has picked up nicely since the breakout, and a move above the 200-day MA should build upside momentum.
With crude oil moving higher, we revisit the chart of the Claymore Solar Energy Index (TAN). Though the 200-day MA sits just above, the tight-three week consolidation pattern should generate enough power to push through the long-term moving average. The ideal breakout scenario for TAN is to clear and separate from the 200-day MA, which would then become a strong level of support on a pullback (similar to the recent action in EWA).
Late Thursday we reversed our UltraShort Financials position (SKF) and went long the bullish reversal bar in the Bank Index SPDR (KBE). Though it was a rough start on Friday morning, KBE recovered with the market to close above the prior day's high, holding the downtrend line and the 20-day EMA. Our OIH long setup triggered on Friday morning's gap up, and closed above the highs of the range. If energy and bank stocks can follow through to the upside, this would strengthen the S&P 500's bid to break through the 200-day MA:
We could see the S&P 500 break above the 200-day MA this week, but whether or not it will hold the 200-day MA is another story. Rarely will a breakout above the 200-day MA be successful on the first attempt. Rather, it's common for indexes, stocks, and ETFs to close above their 200-day MAs for one or two days, attract the "late to the party" bulls, then fall back down a few sessions later. There's a greater chance a breakout above the 200-day MA will "stick" on successive attempts (similar to what the Nasdaq 100 did through May).
Stay alert this week, as a confirmed breakout above the 200-day MA in the S&P 500 could trigger substantial short covering in the market. Conversely, an inability of the S&P to bust through the 200-day MA could quickly lead to a sharp selloff to the 20-day EMA at 890, or a possible test/undercut of the range lows around 878.