Is it just me or is this year flying by? Wednesday marks the last day of the second quarter and investors will turn their attention to the third quarter and the second half of 2021 starting Thursday.
The stock market has done incredibly well so far this year. While technology has seen a bit of hesitation, as growth stocks plunged into a bear market, the Nasdaq has made a good recovery and recently hit record highs.
That’s largely like FAANG plus Microsoft (MSFT) – Get report Not only is the group stable, but many components continue to climb all-time records.
In fact, the stability of this group, which accounts for trillions of market capitalization, is probably what has also helped propel the S&P 500 to new heights.
The S&P 500 is up about 8% during the quarter and has gained more than 14% so far this year. It would be unfair and unrealistic to expect a repeat performance in the second half. Although anything is possible, especially with the Fed’s accommodative monetary policies.
That said, there are likely to be a few hiccups along the way.
S&P 500 trading in the third quarter
The index has hit four new all-time highs in a row and is working towards its fifth consecutive all-time high on Wednesday. In other words, you are trying to come off on a high note for the quarter.
A quick look at the chart above shows how strong the recent trend has been. For the most part, the 50-day moving average has been a pretty good guide, with many dips in this area finding support and bouncing higher.
At times, the index dipped and tested at or near the 21-week moving average.
The last few months have resulted in somewhat choppy price action. Now that the S&P 500 has hit new highs, it would be nice to see a shallow dip.
Specifically, a decline to the 10-day moving average would be appropriate, but even better would be a decline to the 4.238 zone and the 21-day moving average.
The 4,238 mark was the previous all-time high since early May and was a key level in the weeks after. Breaking this level, then retesting it and finding it as support would only strengthen the bullish case.
Until they are proven wrong, the bulls should continue to assume that the 50-day and 10-week moving averages will be supportive. In a major correction, the 21-week moving average should be in focus.
I know, I know … all trends must come to an end at some point and it seems like the market runs on nothing but hot air.
Combine that with a reopening of the economy and easy money policy from the Fed and the bullish case is there. Don’t forget that we’ll also see gains in a couple of weeks, which could help drag the index down to that 161.8% spread at 4,350.
But first a shallow dip would be beneficial.
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