Bull Trap Or Bull Market?

Major U.S. stock indexes climbed last week for the second straight week, with the Dow Jones Industrial Average (NYSEARCA:DIA) gaining 1.7%, the S&P 500 (NYSEARCA:SPY) adding 1.3% and the Russell 2000 (NYSEARCA:IWM) climbing 0.3%.
 
In other financial markets, the Eurodollar (NYSEARCA:FXE) rallied 1% to $126.42 and U.S. Treasuries (NYSEARCA:TLT) rallied 0.8%.

On My Wall Street Radar


In the chart of the S&P 500 (NYSEARCA:SPY) above we can see how short to medium term indicators have turned upward with RSI climbing, the index breaking above its 200 day moving average and MACD climbing, indicating positive short term momentum.
 
Significant resistance lies just ahead at the 50 day moving average (blue line) and 1350-1360 level on the index.
 
Oddly, U.S. Treasury Bonds (NYSEARCA:TLT) rose even as stock markets rallied as investors can’t seem to commit to either “risk on” or “risk off.”

The Economic View From 35,000 Feet  

Last week’s rally appeared to be largely driven on the hope of a positive outcome for the vote in Greece and the hope for more central bank intervention in slowing global markets.
 
Overseas, the major European indexes and Eurodollar (NYSEARCA:FXE) rallied along with their U.S. counterparts.
 
The economic news was mostly negative as ongoing evidence of a global slowdown continues to build.
 
Consumer sentiment hit a 7 month low in the United States, May retail sales declined, industrial production fell slightly and initial unemployment claims rose. Overseas, Spanish and Italian bond yields rose as investors become growling cautious over the future of the two countries.
 
Greece continued dominating headlines as the country voted yesterday and initial results suggest a win by pro-Euro New Democracy which could form a ruling coalition with the Pasok. However, the final outcome still appears to be too close to call.

In France, Francois Hollande won control of Parliament with a Socialist victory in yesterday’s election. 

This coming week brings the long awaited Federal Reserve meeting on Tuesday/Wednesday with Dr. Bernanke’s press conference on Wednesday, and the G-20 meets in Mexico to continue their European crisis fighting discussions.
 
Major economic reports will focus on home building and housing starts early in the week with the Philadelphia Federal Reserve report and European PMI along with weekly  jobless claims on Thursday.
 
Bottom line: Ongoing reaction to the news from Greece, Italy and Spain will likely add to a volatile mix for the coming week. All eyes will be on Dr. Bernanke and the Federal Reserve as well as news from Greece. Pressure will grow on Germany to relax or renegotiate the Greek bailout terms and Spanish and Italian bond investors will be paying close attention to the unfolding drama. We will soon find out if we are in a bull trap or new bull market.

Disclosure: Wall Street Sector holds a position in TLT and actively trades a wide range of exchange traded funds. Positions can change at any time.