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It’s been a good week for the stock market and could see further gains if the debt ceiling problem is resolved without too much trouble. It goes without saying that it is much easier to profit when the S&P 500 (SPY) is rising, even if our portfolio is less correlated to the overall market than large caps. That said, we made some additional changes to the portfolio this week to prepare for what’s to come. Read my latest take on current market conditions and where I think it’s headed.
(Originally, POWR Under $10 Stock Newsletter).
As I mentioned above, the stock looks very strong this week. Debt ceilings are a major issue for investors, but they are likely to be resolved before an actual default occurs.
Once the self-inflicted drama has passed, the focus will return to inflation, Fed meetings and other economic news.
Markets tend to slow down in the summer. This year may be a little different, though, as the focus will be on the summer FOMC meeting.
As I said last week, I prefer a holistic view of market conditions over day-to-day behavior.
S&P500 (spy) has had a good week so far, but as you can see from the graph above, it’s less than 2 standard deviations from the 50-day moving average.
Of course, this does not mean that the rally will continue. However, there has not been a sharp enough rally to necessarily expect a profit-taking move before the weekend.
Economic and earnings news have been relatively calm this week. walmart (WMT) posted a better-than-expected performance, boosting its earnings and earnings outlook for the year.
April retail sales were also solid. Overall, the private consumption situation still looks positive.
It’s hard to tell whether the Fed will raise rates at its next (June) meeting as the economy remains resilient.
The market is about 65% certain it won’t raise rates, but that could change quickly based on new economic data.
I don’t think we need another quarter-point rate hike, but the Fed usually doesn’t ask for my opinion.
Brushing defaults (about debt ceilings) could change the Fed’s mind, but again, I don’t expect actual defaults to occur.
The drop in the gold price below $2000 an ounce seen above may indicate that investors are less concerned about being a safe haven.
The VIX (market volatility index) also continues its gradual downward trend. VIX could spike in the short term based on one-off news events.
However, the general orientation for most years is down or sideways (depending on what the previous year was).
We can see the VIX approaching 16. This means that the stock price moves about 1% per day. Under 15 is generally considered a low volatility environment. Assuming nothing crazy happens with the debt ceiling or the Fed, we might get there this summer.
what next?
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all the best!
Jay Solof
Chief Growth Strategist, StockNews
Editor, POWR Stock Under $10 Newsletter
SPY strain. Year-to-date, SPY is up 10.04%, while the benchmark S&P 500 index is up 10% over the same period.
About the Author: Jay Solof
Jay is the Lead Options Portfolio Manager at Investors Alley.he is the editor of Option Floor Trader PRO, is an investment advisor that offers professional options trading strategies. Mr. Jay was previously a professional options market maker on the CBOE floor and has been trading options for over 20 years.
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