12 Jul 2021, 09:59
Last week, the S&P 500 broke out of a tight wedge pattern and we forecasted that it would make a correction back to the brown support line (see chart). This indeed took place on Thursday as investors sent stocks down on rising fears of lower bond yields.
If bond yields are decreasing, this could imply that investors are rushing to safety of the safe-haven bonds and selling off equity instead. However, this did not last long, as stocks made a quick rebound even on Thursday. Investors rushed back into stocks again and send the stock market back up into all-time high territory.
We think that last week’s wild swing was just temporary mayhem. Once this correction is done and dusted, stocks could begin its bullish momentum again. However, this one-day turnaround recovery is abit too rapid. Normally, we would like to see a few days of correction. Therefore, we would take a caution outlook despite all signs pointing to a strong stocks rebound now. Don’t be surprised if next week is sideways instead. But having said that, July continues to be a strong month and the bullish momentum remains intact now.