By Colin Twiggs
July 2nd, 2012 3:00 a.m. ET (5:00 p.m. AET)
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The S&P 500 closed above medium-term resistance at 1360. I am normally wary of quarter-end prices moves as fund managers have a vested interest in boosting their performance bonuses. But the breakout appears to have a legitimate basis, with Germany's key concessions at the Euro summit, and should test the 2012 high of 1420. 63-Day Twiggs Momentum holding above zero suggests the primary trend is intact. Reversal below the new support level (1360), however, would indicate a false signal. Falling 10-year treasury yields warn of another flight to safety (unless the Fed is driving down yields through its "Twist" operations) and we need to exercise caution.
* Target calculation: 1360 + ( 1360 - 1300 ) = 1420
Wait for the Nasdaq 100 to break resistance at 2630 and confirm the
S&P 500 signal. Rising 21-day Twiggs Money Flow indicates
medium-term buying pressure.
* Target calculation: 2650 + ( 2650 - 2500 ) = 2800
Bellwether transport stock Fedex (weekly chart) completed a double
top reversal in April but since then has oscillated around the former
neckline at $88. 63-Day Twiggs Momentum also recovered above zero.
Follow-through above $92 would suggest that the correction is over and
broader economic activity is recovering. Reversal below $85 is unlikely
but would warn of a primary down-trend.
Treasury yields fall
10-Year Treasury yields are testing support at 1.55 percent. Falling yields suggest that the current stock market rally is likely to fail: money is flowing into bonds — not stocks. Failure of support would strengthen the warning. Recovery above 1.70 percent is less likely but would bolster the stock market rally.
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