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May 31, 2014 – Weekend Market Comment

May 31, 2014 -- Three days in a row the S&P 500 hit a new recorded intraday high this week. The quiet trading days of late May could fade fast as markets brace for two major events towering at the end of the week—a rate cut in Europe and the U.S. monthly jobs report.

The European Central Bank European is widely expected to cut its deposit rate, putting it into negative territory for the first time, and take actions to promote small business lending. The ECB has been signalling that it could take action, including in comments from Mario Draghi, ECB's president, who set the table for a move following the last rate meeting. There is a heavy calendar of economic reports in the U.S., the most important of which is Friday's May employment report. Economists expect job creation to have slowed from April's 288,000 nonfarm payrolls but still come in above 200,000. We are almost back to pre crash employment levels.

While there are few earnings reports, Apple promises to grab headlines when its Worldwide Developers conference starts Monday and when its stock splits 7-for-1 later in the week.

It would appear that the reversal in the bond market was above internal technicals. It had gotten a little overbought at the point . But there were also some very mild whiffs of inflation beginning to appear, and if you look there was strength in the TIPS bonds—the inflation-protected bonds. The resulting lift of the stock market was based on signals that the Federal Reserve's efforts to reach 2 percent inflation might be working, and that the economy had "gotten past the stall speed." Inflation increased 1.6 percent in April from a year ago still as long as inflation stays under 2% we really don’t have a big issue because mild inflation is good for the economy (see my blog: Inflation What Inflation).

So moderate inflation, full employment, strong market, strong dollar, why own gold? This time we are going for a triple bottom test, trust me it could break out below very easily. Silver is on the express to hell and if corrupt Chinese officials would stop stuffing their mattresses with gold bars .... well who knows how low it will go.

I suggest you read last weeks posting and just know that the optimistic scenarios are playing out, the market is heading more risk on.  One of the things that had me worried last week is the primary sell indicator had bottomed, without a up turn here there can be no long term bounce because this indicators shows you what the professionals are doing and right now they are scrambling to get back in.

The Green Arrows graph is looking better and correctly forecast the recovery.

Risk is clearly back on as the NSADAQ summation index recovers from a major drop.

If you are a DOW theory person you will be delight to see the transportation index is firing on all cylinders in a steady recovery since mid April, to illustrate the point I put MACD on top of the graph. 

The NYSE New highs and the NYSE 50 day overbought show that the market recovery is strong and not just in the high tech world. 

Ahh the goldilocks market as all fear ebbs away and the VIX explores new levels of confidence. Yowsers!

In may last posting I gave you a ton of good ideas to go try, for those of you who followed me in to Tripadvisor your wallet is much fatter this week. 

If the NASDAQ is back then buy the masters of the universe Google. Looks like a bounce up to me. . . 

L3 Communication continues to make big bucks on the new paranoid America, providing full body airport scanners and more traditional security x-ray machines.

Also probably headed for a breakout is Assurant Inc. This Insurance company has a good management team and a nice dividend yielding 1.5% It looks like it is doing well with its new acquisitions in Mexico and 5 other Latin American countries. You will not get rich on this one but it is steady-freddy. 

Well there you go.... this be your classic bull market, enjoy but don't forget, trees don't grow to the sky... but at least for this week, the party is on!

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