What Moves the Market?

This is a really critical question right now. Until about a week ago, it was a pure technical market. It ran for six weeks above 13 day moving average, then all three major indices, Dow Jones, S&P 500 and Nasdaq Composite dipped under MA 13. Then we had a week of divergence. While the Dow essentially moved sideways, the S&P and Nasdaq resumed their march over MA 13. Which kinda invalidated my idea that party is over which I posted here. Let do a quick review.

Technicals

The Dow Jones is over its 50 days moving average, over 8000, and broke over the downward trendline it had since November. S&P is also over MA 50, but failed to breach the 875 line so far. The Naz is screaming! It's only 90 points under its 200 day moving average and at the high for the year. All technicals are extremely bullish, with one exception: the market is extremely overbought. But it was overbought for the last seven weeks.

Sentiment

Sentiment is amazing. Despite a huge bull run, it's mostly bearish, sometimes getting neutral for couple of days. Of course, I might be wrong, I'm using a completely unscientific method: I'm just counting the bullish and bearish commentators on CNBC when I watch it and several web sites. Anyway, if somebody can point me to bullish sentiment counts, I'm ready to recognize my mistake.

Fundamentals

Not much changes in the fundamentals. Yes, a lot of companies managed to beat very low estimates and shot up like crazy. But earnings are weak, the economy is in a weak shape, the only good news is that the US consumer is alive and kicking. The Fed is struggling to contain possible deflation and the results are unclear so far.

I don't like the conclusion I'm about to make: the outlook is bullish. I just have to make it, because the technicals are bullish and the sentiment is bullish as well (the market is climbing the wall of worry). Fundamentals are bearish, but for the last several months the market didn't care about fundamentals. There are a couple of things which can change the picture. First of all, this is the end of the month and there is a possibility of window dressing, although this is not the end of the quarter. Second, a lot depends on the government, and it has been quite unpredictable. I don't know if I want to commit more money on the long side right now, although tech and, surprisingly, REITs look quite tempting.

Comments

[iknoknot:]

the PPT?

:^)

--ikk

Apr 30 05:21 AM

[jeandit75:]

Alex, when every bear is finally convinced that the bear market is over than I guess we are coming down again. I feel like a lot of bears have thrown the towel lately (including myself).

Apr 30 08:08 AM

[Fabien Hug:]

All the printed money has to go somewhere. I suppose that's what is happening now. Nothing else to do than going with the flow, finger on the trigger.

Apr 30 10:00 AM

[Applegator:]

The question might be, "What is propping up the market considering the weak fundamentals"?

And sadly the answer is government money (taxes plus new debt) given to the big banks, parked (for the time being) in the market. Thus the big banks have a tow-fold stranglehold on US corporations: equity ownership and credit.

When (not if) the big banks begin to sell their equity, it will be selective selling of companies with poor fundamentals, with whom the Banks have no intention lending to in the future.

Conversely, bank-held stock of corporate favorites will be spared the banks' stock selloff.

As this scenario unfolds, corporate winners and losers will come into focus.

And the federal government will have unprecedented power over Bank stock and credit decisions.

Ultimately, it's all a house of cards. Meanwhile, the war between government/bank involvement (read manipuation) and economic fundamentals will rage.

All else is window dressing.

Apr 30 04:16 PM

[Old Trader:]

Alex,

Regarding a sentiment indicator, it appears you need to go no further than Seeking Alpha. Earlier today, I commented that over the last several days, I've noticed that more and more bearish comments are drawing a "thumbs down" and bullish ones earn "thumbs up". The "coup de grace" is that I've even seen a couple of Cetin's comments with an overall "thumbs up" rating!!!!!

Apr 30 11:13 PM