Market Insights

Stocks rose again last week as one bullish chart pattern after another appeared.

The S&P 500 rose 4 percent in the holiday-shortened week between Friday, June 26, and Thursday, July 2. Winners outnumbered losers by more than 19-to-1. The index also registered a 1 percent gain in June and completed its best quarter since 1998.

Several economic reports beat expectations. U.S. payroll growth and unemployment were much better than feared. The Institute for Supply Management’s factory index had its sharpest gain in 40 years as factories added workers and boosted production.

China had its best purchasing managers index since December. German unemployment was lower than anticipated. U.S. oil inventories tightened more than expected as the energy-supply glut eased. Consumer confidence also shot past forecasts as Americans looked for the economy to reopen.

But will it? Coronavirus cases are rising again. Will that halt business and hiring as some areas shut down again? Are face masks enough to stop the pandemic and keep the recovery on track? These are the questions now facing investors.

Climbing a Wall of Worry

But here’s another question: Is everybody too bearish? The American Association of Individual Investors (AAII) showed that just 22 percent of investors were bullish last week. It was the lowest reading since October, when worries about Chinese trade plagued sentiment.

That moment of gloom was followed by a breakout the same month. (AAII’s survey is usually a contrary indicator because it shows when people are under-invested. As the adage says, bull markets “climb a wall of worry.”)

Other points seem to confirm the negativity is extreme. A record $4.6 trillion dollars is on the sidelines in money market funds, according to The Wall Street Journal. Citi’s quarterly survey of professional money managers also found that 70 percent think the market is headed lower.

But at least three technical patterns on the S&P 500 may suggest the opposite may occur.

First, the index held support at 3,000 and its 200-day moving average. Both lines were tested and held in early and late June. That could mean that buyers outnumber sellers.

Second, last week had a lower low and a higher high than the previous week. That’s known as a bullish outside week and is often viewed as a positive reversal pattern.

Golden Cross Coming for S&P 500?

Third, the S&P 500’s 50-day MA is just 20 points below its 200-day MA. The faster-moving line is rising more than 6 points a day, so it may cross above the 200-day MA this week.

That would produce a so-called “Golden Cross,” which can signal the longer-term trend is turning bullish.

The Nasdaq-100 also surged 5 percent last week — its biggest weekly gain since the beginning of May. Electric-car maker Tesla (TSLA) led the rally by ripping 26 percent after June deliveries beat estimates. Smaller rival Nio (NIO) spiked 36 percent on similar news. Neither are members of the S&P 500 index.

FedEx (FDX) rose the most in the S&P 500 after increased e-commerce deliveries pushed quarterly results ahead of forecasts.

At least two other important things happened last week:

• Pfizer (PFE) had positive early results for a prospective coronavirus vaccine.
• The Federal Reserve continued to promise low interest rates. Minutes from its June 9-10 meeting promised “highly accommodative” monetary policy five times.

Quiet Week Before Earnings Season

This week is relatively quiet. Things will get more active later in the month as companies report quarterly results.

Today brings the Institute for Supply Management’s service-sector index.

Wednesday has oil inventories.

Thursday morning features initial jobless claims and earnings from Walgreen Boots Alliance (WBA).

The week ends with producer-price inflation data on Friday morning.