For much of June in my weekly Street$marts newsletter and last week on this blog, I wrote about how bad the headlines have been with Greece, Europe, awful employment numbers, Case-Shiller home price index at fresh 9 year lows and the Fed's Quantitative Easing II was coming to an end on June 30. It certainly felt like the stock market should be down 10-15%, if not more. Yet when you look at the chart below, the market completed its fourth 4-8% normal and healthy pullback since the major low on July 1, 2010.
You can also see from the chart that the S&P 500 touched the dark blue line, which represents the average price of the last 200 days. It is not uncommon for the market to visit this long-term trend gauge during periods of weakness. Interestingly, the 1250 area in pink on the chart was not breached during the decline. That's one thing that did surprise me. Typically, when the masses become so focused on a certain level, the market has a funny way of running through that number for a day or two, causing investors to take action and then reversing in the opposite direction leaving many people holding the bag. This is called a trap.
So as I write this, we have now seen 8 straight days and 11 out of the last 13 where the bulls won the battle. That is unusually powerful momentum. During bull markets after a decline, that is confirmation of new leg higher beginning. During bear markets, a move like we have seen is best sold in to. Contrary to the emails I have received and arguments from my peers, we are still in a bull market folks. And with the Dow Transports scoring an all-time high today, we have further confirmation.