I would like to welcome everyone back from the 4th of July holiday weekend. The overall stock market staged a rather impressive rally the last week of June. The Dow Jones Industrial Average rallied from 11,934.58 to close out Friday July 1st at 12,582.77 This represents a gain of 648.19 points or approximately of 5.4%. Hopefully this should be obvious to all that weekly gains of this magnitude are not normal and the track record for follow through is not all that great.
I track approximately 35 market indices on a daily basis. In looking at the charts this morning from last week’s trading activity, they clearly indicate that not only are the major market indices very over extended but all the various sector indices (with the exception of the gold indices) are all also seriously over extended. To me, this indicates that we are poised to see a market pullback. Also, I would like to point out that the Dow Jones rally at the end of May reversed course and headed back lower when the Dow reached 12,569.79 on a closing basis on May 31st. Additionally I just don’t believe a vote of the Greek Parliament is going to solve their problems.
I think the market rally at the end of June was primarily a combination of end of the quarter “window dressing,” and short covering prior to the 4th of July holiday. My thoughts are we are going to see a pullback, and possibly the start of a new downward trend, in the market in the next few days.