Can the Bulls Keep the Market Rolling?

The thrilling comeback climb continues this week.

A little manufactured trade-war optimism helped light a fire under the tape early Monday morning. But the Dow ended the day higher by just 60 points while the S&P 500 slouched near breakeven.

As the averages approach key resistance levels, some folks are starting to worry that the snapback move won’t stick.

“U.S. equity markets are on an unmitigated tear, by several measures, but the recent span of buoyancy for equity benchmarks, including a nine-week win streak for the 122-year-old Dow industrials, has produced equal parts wonderment and dread,” MarketWatch reports. “Friday’s finish, for one, capped the best start to a year for the Dow Jones Industrial Average and the S&P 500 index since 1987, according to Dow Jones Market Data, measuring the first 36 trading sessions for those indexes at the beginning of a calendar year.”

Not impressed? Try this one on for size: The Dow has posted eight consecutive weekly gains so far this year, MarketWatch adds, something it hasn’t done since 1964.

With the December meltdown fresh in most investors’ minds, it’s not surprising that many investors are waiting for the other shoe to drop.

But following this historic rally off the holiday lows, is now the time to cut and run?

Not exactly, says our income expert Mike Burnick.

Stocks are as overbought now as they were oversold in late December, Mike notes, with as much as 90% of the stocks in the S&P 500 Index trading above their 50-day moving averages recently.

“While you could interpret that as a healthy uptrend for stocks, it is also an extreme overbought signal that often leads to a market pullback,” Mike says. “I’m not saying jump ship entirely, mind you. But you need to be more cautious and perhaps take some profits off the table.”

Of course, this call depends heavily on how the averages react to resistance. The S&P 500 is just now starting to bump against its November-December highs. Any difficulty crossing this threshold could hand us a quick pullback, Mike explains.

SPX

“I’m not expecting a repeat of the dismal December correction that saw the S&P drop nearly 15% in just a month,” Mike concludes. “But a 4–6% pullback to key support at the 2,600 level would not surprise me one bit.”

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Next up: merger mania continues to spread like wildfire in the gold sector.

Gold’s on pause to begin the new trading week as it continues to consolidate its breakout above $1,300.

But miners are on the move…

Barrick Gold (NYSE:GOLD) is making a power-play for mining supremacy. Barrick announced over the weekend that it’s embarking on a hostile takeover of rival Newmont Mining Corp. (NYSE:NEM). If the move succeeds, these two giants would form the biggest mining operation in the world.

“The offer sets up a showdown between management teams at two of the mining industry’s fiercest rivals,” The Wall Street Journal reports. “Barrick has long considered merging with Newmont, America’s largest listed miner, to pair up their large gold-mining operations in Nevada and create an industry giant that would dwarf the nearest competitor. A combination would create a behemoth worth about $42 billion at today’s valuations. Barrick said Monday it would create opportunities to squeeze out over $7 billion in cost savings.”

Of course, we need to pay attention to this deal since Newmont just signed an agreement to buy Goldcorp Inc. (NYSE:GG) last month. Earlier this month, I mentioned industry speculation of a higher bid for GG before the deal could go through.

Goldcorp shares barely budged on the news. After a quick rally late last week, our trade remains stuck just above breakeven. If it can’t find some momentum here, we’ll move on to better opportunities.

Finally, it’s getting tough to keep up with all the major market news these days…

A busy earnings season has kept me on my toes here at Rude HQ. I try to keep you plugged in to the biggest stock stories every morning. But over the past several days, some major moves have slipped through the cracks.

Here are my quick takes to help us catch up:

The Kraft Heinz Co. (NASDAQ:KHC) falls and it can’t get up.

Kraft whiffed on Q4 earnings, released disappointing guidance, and admitted the SEC has been investigating its accounting practices. As if that wasn’t enough bad news for the week, Warren Buffett is piling on, admitting he overpaid for his stake in the processed food giant.

Shares are down nearly 30% since late last week — and the long-term chart is even worse than I imagined:

KHC

Stamps.com Inc. (NASDAQ:STMP) takes a leap of faith on an Amazon partnership.

Stamps.com trashed its exclusive deal with the US Postal Service late last week, opting instead to team up with Amazon’s burgeoning shipping empire.

The deal might work out in the long run for Stamps.com. But traders don’t want to have anything to do with the transition. The stock cratered almost 60% on the news (The chart is so ugly I didn’t even bother to annotate it for you. Just stay away.)

Finally, biotechs staged an impressive breakout to start the week.

The iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) exploded to four-month highs yesterday thanks in part to Roche’s $4.3 billion buyout offer for Spark Therapeutics Inc. (NASDAQ:ONCE) for a hefty 120% premium.

IBB

I’ll keep a close eye on the sector for potential new trades as the week progresses.

Sincerely,

Greg Guenthner

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Greg Guenthner

Greg Guenthner, CMT, is the editor of Opening Bell Fortunes and Seven Figure Signals. He has been with Agora Financial/Seven Figure Publishing since 2005. In 2019, the average position in Greg’s Sunrise Fortunes portfolio outperformed the S&P 500 by 1.65x.

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