Stock Rally Continues as the May Jobs Report Produces a Large Upside Surprise - Chaikin Analytics

Stock Rally Continues as the May Jobs Report Produces a Large Upside Surprise

SPDR S&P 500 ETF (SPY) has seen its ETF Rating turning bullish as the fund gapped higher on Friday following a much better than expected payrolls report, with the economy adding 2.5 million jobs in the month of May. In the near-term, the fund is overbought based on our indicator while Chaikin Money Flow is bullish. SPY is above the rising long-term trend line and now has a bullish Chaikin Power Bar Ratio. On a relative basis, SPY is lagging the IWV (Russell 3000 ETF) in a sign that small stocks are now contributing to the market’s advance. 

We have highlighted the importance of various key levels during the advance since the March 23rd lows. Friday’s close above the $311 mark now increases the odds that the February highs will be tested (we note that the Nasdaq QQQ Trust made a new all-time high on Friday). 

Given the overbought condition of the fund, we have to be mindful of the potential for a pullback / consolidation. Key price levels to watch, should this play out are $300 – $310. Below that $285 – $295 are also important. Holding these levels would keep the uptrend from the March lows in place and the door open to an attack on the February highs. 

Small Caps

The iShares Russell 2000 ETF (IWM) has a Neutral Chaikin Power Gauge ETF Rating and continues to underperform the SPY but the intensity of underperformance has diminished of late. The OB / OS Indicator is moving lower in an overbought position and Chaikin Money Flow is bullish. The fund is above the long-term trend line and the Power Bar Ratio is bullish. 

IWM is trading near resistance at the $150 level following a strong advance. On the downside, there is first support in the zone between $125 and $135. Further improvement on the part of small caps would be a sign that participation in the market’s rally is broadening and would increase the odds that it continues.

Fixed Income 

The iShare 7 – 10 Year Treasury Bond ETF (IEF) has a Very Bullish Chaikin Power Gauge ETF Rating and is lagging the SPY. The OB / OS Indicator is moving lower in an oversold position as Chaikin Money Flow remains bullish. IEF is now below the rising long-term trend line as treasuries have come under near-term pressure with risk appetite increasing in the market. 

Support is in the $118 – $120 range while resistance is in the zone between $123 and $124.

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