This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Why Are U.S. Stocks So Strong Right Now?

By Michael Arold

In last month’s report, I discussed five reasons to be long US equities. Recent strength in stocks surprised even me: as of July 31, the S&P 500 Index (SPX) gained over five percent during the first month of the third quarter. All the points I made remain valid. Let’s highlight a couple of additional thoughts and observations:

Is the US stock market melting up?

Investopedia defines a stock melt-up as a “dramatic improvement of investment performance of an asset class.” Technically, it is easy to recognize such a phase – price momentum accelerates.

Current monthly charts of major indices hint that stocks could enter a melt-up phase. In this case, equities could easily double their current 2013 gains until the end of the year. However, it is difficult to predict such a development and one can only apply classical trend following principles.

So why are US stocks so strong? There are simply not many investment alternatives: Most of Europe is in a recession, China and Japan have issues (see below), most commodities have been losing value and global interest rates remain low.

Technology stocks took over leadership

Starting in May, the Nasdaq Composite Index (COMP) began to outperform the general market and has also been leading in July. It is a healthy sign of a rally to see sector rotation during consolidation phases.

It is obvious that investment money has been moving from defensive sectors, such as Utilities, into Technology since the April consolidation. In my opinion, the current trades of this sector are Apple (AAPL), Cray (CRAY), SunEdison (SUNE) and Tibco Software (TIBX).

Housing sector has lost its mojo

It seems surprising that housing stocks broke their uptrend, which started in 2011. The US housing market has been recovering in 2013, but recent housing starts and building permits numbers have been disappointing. Markets are forward-looking, housing stocks now anticipate headwinds from higher interest rates.

Dr. Copper in a difficult position

Copper prices have been under pressure since the beginning of 2013. Futures are trading at the important $3 support level, driven by China slowdown fears. The question is if these fears could spill over to global markets and even hurt the US stock rally. China brings us to the next topic: Japan.

Japan: Can Abe convince the markets?

Japan stocks did have a good 2013 so far. The Nikkei 225 Index (NKY) is up about 40% as of August 3. Unfortunately, the market recently has been acting very volatile. Not a good sign of a healthy rally. Market participants are unsure if Japan’s policy will lead to economic growth. The “long Japan equities, short Yen trade” is very crowded and leaves room for disappointment.

I’m closely monitoring the Asia theme since it has the potential to put an end to the U.S. rally. So far, investors have been ignoring the developments, so “the trend is your friend until it ends.” So far, I’m trading from the long side.

* * *

Get to know Michael:

The investments discussed are held in client accounts as of July 31, 2013. These investments may or may not be currently held in client accounts. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable.

Michael Arold

Michael Arold

I am a technical trader and an aerospace engineer with more than 15 years of investing and trading experience. My

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AAPL $93.21 -0.44%
FB $117.80 -0.22%
GOOG $701.26 0.80%
TSLA $211.34 -5.00%
YHOO $36.94 2.60%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs