Welcome to the Everything Rally!

By Tim Anderson of TJM Investments

So much for major resistance at the 200-day moving averages for the S&P 500 (^GSPC), NASDAQ (^IXIC), and Russell 2000 (^RUT). They all breezed through that supposed roadblock with little hesitation Tuesday, as everything fell into place for the bulls.

We even had the rare phenomena—so old-fashioned that I can’t remember if it’s from the 50s, the early 20s, or possibly the Victorian era—that “good news” can actually be good news ... at least for one day.

Now, of course, in the traditional Wall Street mentality of “What have you done for me lately?” ... Will this rally be a “one-day wonder” or can a stock market trading with a 12-month trailing P/E of 19-ish, with declining revenues and earnings for the S&P 500 of 5 and 0.75, respectively, really make a run at new highs for the first time in just over a year?

The S&P 500 at 2076.06 is 2.6% from its all-time high of 2130 (and change) from a year and a week ago.  Working in its favor, there is a nicely developing “golden cross” on the S&P chart that began on April 25. Of course, there’s the caveat that the S&P had a false positive “golden cross” back on December 21, which failed miserably 10 days later. This one shows much more promise as the 50-day moving average has continually widened its spread against the 200-day moving average, which now sits at +2.5%.

Nasdaq at 4861.06 is still over 5% from a new all-time high, but the rally yesterday in the technology sector was much more broad-based than what we saw during much of the last two years. The so-called FANG stocks had a good day, and yes Amazon has recently reached new highs. The difference is that dozens of technology stocks are participating in the Nasdaq rally since last Thursday, including many sub-groups that have been languishing for many quarters.

Cisco at 28.47 is pressing right against a triple top of resistance from March and April highs, and above that, the $29 to $30 area rejected multiple rallies from February through April last year. Cisco has rallied +6.5% since its earnings report last Thursday and is still an unmatched bellwether of cap-ex spending in the tech and telecom space.

Applied Materials at 23.49 defines most of what you need to know about the resurgence in the semiconductor business. Nearly left for dead in the first quarter, the space has been on fire most of the last week. Applied has rallied a whopping +7% since its earnings report last Thursday.
 
Dozens of other technology names have had multiple-point moves this week. There is no doubt this space will be heavily scrutinized through next month as we finish the second quarter and investors position themselves for the second half of 2016.

We’ve had numerous “false breakouts” from tight trading ranges the last few months as well as many failed attempts at new highs the second half of 2015, but the move the last five days feels like it has more substance behind it. Market breadth in the first hour is close to matching the positive 3 to 1 advance-decline stats from yesterday, and all sectors sans electric utilities are showing steady gains.

We’re certainly not of the mindset to predict new highs, but with light volumes anticipated the next few days leading into a holiday weekend, and next Tuesday being the last day of the month, the bulls may sense an opportunity to “go for it!”
 
In the first 45 minutes of trading Wednesday, there was considerable follow-through to yesterday's move, with the oil sector a noticeable participant after being largely absent from Tuesday's rally. Last night, the API oil inventory report showed a drop on 5 million barrels providing the catalyst for oil to make yet another charge at the $50 level. On the next news of any supply drawdown, the $50 resistance level will likely get a serious test.