Which Comes Next: 2900 or 3100?

NYSE: SPY | SPDR S&P 500 News, Ratings, and Charts

SPY – Making new market highs is a good time to contemplate if stocks are ready to keep on the upswing or time for a round of profit taking. Read on for my analysis.

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Some price levels mean more than others. That’s why there is much to be celebrate for making it to yet another meaningful level of 3,000.

It really was a ten month process to get here as stocks were knocking on the door back in September 2018. Two nasty corrections and two mighty bounces later we have made it to this exciting place.

The natural question is to ponder what comes next. Meaning do we run out of gas with stocks slumping pulling back to 2900 or lower…or do we continue rallying to 3100???

Let’s contemplate the nature of each scenario and plan out our trading strategy.


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Rally to 3100

It could be said that stocks have been consolidating under 3000 for the past couple weeks and finally has enough energy to breakout higher. Things that would help the cause would be:

  • All quiet on the trade front. We don’t need a deal in place. That will take some time. Just need there to be no more war of words.
  • Economic data stable to moving higher. We cannot afford too much more softening from current levels.
  • Earnings season to beat the low expectations.
  • The Fed does not have to lower rates for us to reach 3100 because rates are already incredibly low making stocks the better value than bonds. But yes, if they did lower rates at the July meeting, then it would be yet another catalyst propelling stocks higher.

The strategy here is simple. Keep riding the bull as you have been doing the majority of the last 10 years. However, the large cap “Risk Off” stock trade is already played out.

Instead it should now be time for investors to go out further on the risk curve rounding up more of the attractive small and mid caps. I also like small and mid caps growth stocks that provide 2% or greater dividend yield because of the extra attractiveness of dividend income at this time. (I just added 2 like that today to the Reitmeister Total Return portfolio).

Slump to 2900

Here I am just talking about a classic 3-5% pullback from the highs. Nothing nefarious in that situation. Just a case of investors taking some profits off the table given the stiff resistance that could persist at 3000.

Investors would be best served staying bullish as we would retest 3000 soon enough. Perhaps just a good time to review your portfolio and make sure all of your stocks have improving earnings outlooks and fair valuations. Anything that doesn’t fit the mold should be sold to bring in healthier selections.

Of course there is the chance the pullback devolves into something nastier. Like an outright correction. Things that would increase the odds of this scenario would be for some of the bullets noted above turning in a more negative direction. The most harmful of which would be if tempers flare up again in the US-China trade talks.

We would also need to keep a keen eye on the economic data. Right now GDPNow is estimating +1.4% growth for Q2. That is a steep drop from the previous quarters +3.1%, but it is still growth. And not far off the 2% average pace the past 10 years of this bull market.

So if we see noticeably weaker readings for ISM Manufacturing or ISM Services, that would indeed push GDP expectations lower and the stock market would likely respond with lower prices.

In this scenario investors should become more defensive. That may simply mean going from 100% long down to 50-70% long. Or for more aggressive traders you may want to add some inverse ETFs in the mix to profit from the downside action.

What to do Next?

Keep on top of the how things evolve with trade, economic data and earnings. That will likely tell you what to do next. Then make sure that your portfolio is loaded with the right kind of stocks & ETFs.

Of course, stock investors should focus their portfolio on stocks with POWR Ratings of A and B.  Plus these recent articles will send you in the right direction:

16 Soaring Momentum Stocks

Top 12 Deep Value Stocks with 50%+ Upside

9 Nasty Sell Rated Stocks Set to Tumble

Those who prefer to go to the ETF route should review the Best ETF Categories feature on ETFDailyNews.com. First focus on the top rated categories, then select one of the highest ranked ETFs in that group.

FYI: I am going on a two week family vacation to Paris, London and Scottish Highlands. So the next edition of “Reity’s Weekly Review” will not be until 7/27.

I hope you continue to enjoy the summertime with friends and family. And my fingers are crossed that when I return the market is closer to 3100. If not, then the information above will keep you on the right track.

Wishing you a world of investment success!


Steve Reitmeister

…but my friends call me Reity (pronounced “Righty”)
CEO, Stock News Network

Editor, Reitmeister Total Return

 

 About the Author

Steve Reitmeister is the CEO of the Stock News Network bringing 40 years of experience to help individual investors find outperformance. You will find his hand-selected stocks in the Reitmeister Total Return portfolio.

For the better part of the past two decades he was the Editor-in-Chief of Zacks.com where millions of investors enjoyed his timely market insights. His commentary has also been featured on other leading investment websites including Yahoo Finance, SeekingAlpha, CNNMoney and MarketWatch. Steve has an MBA from DePaul University and B.A. in Economics from the University of Wisconsin (Go Badgers!).


SPDR S&P 500 (SPY - Get Rating) shares fell $0.13 (-0.04%) in after-hours trading Friday. Year-to-date, SPDR S&P 500 (SPY - Get Rating) has gained 21.42%, versus a 21.42% rise in the benchmark S&P 500 index during the same period.


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