S&P's swing signal
While I have been calling for the uptrend to resume, I do have some small misgivings. First of all, I'd have liked the recent sell-off to have gone a bit further than it did, at least for some of the indices. For example, it would have been nice to see the FTSE reach oversold levels on its daily chart, by giving a reading of around 30 per cent on its relative strength index (RSI). In my eyes, that would have set it up for an even bigger snapback rally.
Dow's modest recovery
I would have also been happier had the S&P and Dow experienced a bigger lift-off following their shakeout. On Tuesday 23 April, the strongest day of gains to date, both went up by about 1.1 per cent. In my experience, some of the best rallies are those that kick off with really powerful, consecutive up-days of 1.5 per cent or more. But this is not essential. I am probably splitting hairs.
Overall, the outlook for equities remains pretty benign. The latest signs that the German and US economies are slowing will likely guarantee further liquidity being pumped into the markets by the European Central Bank and Federal Reserve, respectively. Such liquidity is, quite simply, the lifeblood of this bull market. I am not suggesting that this is healthy, but it is clearly positive for the near term.
Positive scepticism
I am also heartened by all the public cynicism towards stocks. The bears have vastly outnumbered the bulls in the latest two AAII surveys of investor sentiment in the US. The reading of minus 35.1 per cent on 12 April was the lowest since the summer of 2010. Very depressed readings such as this are a feature of market lows, usually preceding significant rallies. American pundits have also been shifting away from optimism, albeit more modestly so.
One possible reason for the negativity of private investors is the time of year. The spring/summer period is famously a weaker one for stocks by tradition, and the 'Sell in May' stories are starting to do the rounds. I certainly wouldn't be surprised if we got another correction in stocks in the second or third quarter. But I think it will come only after another burst of upside in the markets, and perhaps quite a decent one.
The S&P and Dow are within spitting distance of their recently achieved all-time highs of 1597.3 and 14887.5 respectively. The fresh records that I expect to be set shortly will therefore involve nice round-number thresholds being crossed. While 1600 and 15000 have no particular technical significance, they may have a psychological impact, reminding the many investors who have parked their cash in bonds of what they are missing.
DAX resurgent
I am especially interested in the DAX at the moment. The German index got hit noticeably harder during the sell-off, dropping to around its 200-day moving average. Its initial comeback has been extremely impressive so far, shooting upwards on Tuesday 23 April. Especially if the European authorities do ease monetary conditions further, an attack on the record peak of 8151 could be seen rapidly. It's time to get buying again.
