Market Commentary:

The stock market once again had a good day and is now challenging its June highs. In just 6 days, the S&P 500 came within 3 points of taking out the May lows to now coming within 5 points of challenging the June highs.

This is quite a reversal. The bulls have managed to keep the trend above the weekly middle Bollinger Band lines and now appear to be getting ready to challenge the long-term primary indicators.

If momentum can hold here we are not far from seeing the 50-day EMA exceeding the 200-day EMA for the S&P 500 index.

I see Goldman Sachs today boosted its forecasts for the S&P 500 Index, saying improving earnings will spur the steepest second-half rally since 1982.

I don’t disagree with Goldman on this call if long-term indicators are triggered into buy signals – as this is sure to bring a marked improvement in volume and bring into the market some big money waiting for the long-term measures to turn bullish.

The longer the S&P 500 can trend above the 200-day EMA, the 50-day EMA will soon catch up with the 200-day and a “crossover” will occur and trigger a long-term buy signal.

Also, notice that we are also very close to seeing a buy signal based on the 12 month moving average of the S&P 500 as well.

We are not quite there yet but it wouldn’t take much to trigger a buy signal now from the long-term indicators.

GDP FIGURES ON JULY 31ST

On July 31st, the second quarter GDP figures will be released. It looks like the market is gearing up for a good report – the White House Budget Director has indicated that second quarter GDP will come in at -1% to -1.5%.

If this proves true it would mean a number of things.

For the first time ever, the US economy will have contracted for four consecutive quarters. That would be the strongest decrease in real GDP in more than 50 years and, at the same time, the second largest cumulative decline since the end of World War II.

On the positive side it would mean this recession may be about to end, perhaps as soon as September. That would be welcome news for all of us.

Should the GDP figures at the end of the month turn out to be worse than expected, say perhaps -3% to 4%, the notion of a recovery in 2009 gets postponed into 2010.

I wouldn’t think the market would react well to that news.

TECHNICALS

From a short term perspective, the market remains strongly overbought. So some sort of a short term pause is anticipated to clear out this condition. I suspect a pullback to the daily middle Bollinger Band line at 909 or to the 50-day EMA at 905 could be on tap.

The intermediate-term picture is now setting up constructively after last week’s advance, with %K at 31 and %K at 33. Though still not positive, it could derail again given our short term overbought condition.

So what should investors do?

For now remain cautious until our long-term indicators turn positive. Either they turn positive or they fail and in the next few days we are about to find out.