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Dave & Donald Moenning

Mr. David Moenning is a full-time professional money manager and is the President and Chief Investment Officer for his Chicago-based Registered Investment Advisory firm, Heritage Capital Management (...

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The Bulls Have Cause For Celebration, But Can It Last?

After Tuesday's trading session, the bulls appear to have regained control of the markets.

What a difference a few days can make in this business, right? Just about a week ago, traders were freaking out in response to David Tepper's suggestion that hedge funds shouldn't have the pedal to the metal at this time.

Just like that, two days of hard-earned gains were reversed, the momentum stocks were back in the tank and it looked like the bears were about to win the day.

The big correction traders began looking for never came: Russia didn't annex Ukraine, the ECB began serious talks to improve the economy in Europe and economic data in the US continued to beat expectations.

Related: Can The Bull Market Survive A Momentum Meltdown?

On that note, the final GDP growth rate for Q1 is likely to come in below zero. But, the good news is that it can be blamed on the weather. And the general consensus seems to be that Q2's growth rate for the economy might have a four-handle on it.

As such, investors are starting to realize that growth in the U.S. might not be dead after all. The bottom line is that with improving economic expectations comes higher stock prices - especially when expectations are low.

S&P 500 Weekly 

spx_weekly_5-27-14.png

Based on the weekly chart of the S&P 500, one couldn't be blamed for wondering what all the fuss has been about lately.

The action over the past few days has been very important. It is crucial to run through the charts because, as they say, a picture can indeed be worth a thousand words.

S&P 500 Daily 

spx_daily_5-27-14.png

After Friday, the key question was whether or not the S&P 500 had actually broken out of the recent resistance zone. Yes, the index did close at an all-time high, but a magnifying glass was needed to see it on a chart.

Given that follow-through has been exceptionally tough to come by this year, well, a lot of folks had their doubts about Friday's rally.

However, with Monday's gain tacked on, it is fairly clear that the S&P 500 has broken out to the upside. Therefore, the bulls will now be looking to defend their gains during the next bout of selling. The bottom line is that as long as the S&P 500 stays above 1900, the bulls are still in control of the markets.

NASDAQ Daily 

nas_daily_5-27-14.png

Some will argue that the chart of the NASDAQ isn't nearly as compelling. Those seeing the glass as half empty will contend that the tech-heavy index is a long way from confirming the S&P's new high and as such, represents a technical divergence.

Related: Does The S&P Have Anywhere To Move?

In the opposing dugout, those adorned in rose-colored glasses may argue that the NASDAQ doesn't have to "confirm" anything at this stage. No, the idea here is that the downtrend that had been in place for about two months appears to have ended.

Yes, the NASDAQ has resistance overhead to deal with. Yes, this could certainly be problematic at some point - perhaps soon. But the key is that stocks appear to be trending higher at the moment.

And, since just about everybody on the planet was expecting the bears to be in control of the markets, well, the fact that there are uptrends to be found on many charts is certainly a positive development.

The Micro-Caps, which is where the real damage occurred during the mo-mo meltdown, appear to have stabilized to some extent.

iShares Micro-Cap ETF (IWC) Daily 

iwc_daily_5-27-14.png

To be sure, the chart of the iShares Micro-Cap ETF (NYSE: IWC) is ugly. But remember, history has shown that if stocks involved with a momentum meltdown are able to stabilize, then the overall market needn't have to experience a serious decline.

The thinking is fairly straightforward here. Up until the biotech, internet and social media darlings started to tank in earnest, the stock market was in pretty good shape. But when the leaders get hit - and get hit hard - a 'mo-mo meltdown' can weigh on investor sentiment. Oftentimes, the meltdown can cause investors to lose faith in the overall market, which, in turn, produces more selling and a decent sized correction.

However, IF the overall market can survive the meltdown and IF the mo-mo names don't drag down the rest of the market with them, the market has shown several times in the past that it can avoid calamity.

So, IF the S&P can remain above 1900 for a while, IF the NASDAQ can stay above 4150 and IF the low in the IWC can hold up, then the bulls might be able to begin yet another leg higher in what continues to be a most impressive bull market run.

Positions in stocks mentioned: SPY

Tags: David Tepper ecb

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