The market had another great day Tuesday, although once again volume was very low. And quite the opposite of Monday’s action, Tuesday financials were the big laggards. On Monday financials were the stars of the sectors. But on Tuesday financials turned into laggards as oil stocks and technology reigned supreme. Curiously, consumer stocks did not get a nice pop following great Nike (NKE) earnings.
The big move this week followed horrendous disappointments in income and spending numbers on Monday and consumer confidence and home prices on Tuesday. The lack of decline following the poor economic data goes to show that the market is not overly concerned about fundamentals at this juncture.
At this point, the market cares about two things: 1301 and 1250. Every move it makes between each of those prices is purely technical mush. The SPX has traded in that consolidation zone for nearly three weeks; quite honestly, it looks content to stay there.
We have seen good buying activity in some areas of the market, namely tech, but at this stage no industry has staged a break out. The resolution in Europe could provide an upward catalyst that takes us out of this trading range simply because the dollar should retreat. And while I do not consider that rationalization a compelling reason to buy and hold, it could generate a scuttle higher towards 1335.
Even though I continue to be bullish – and I would like to stay that way – I have a hard time being a believer without volume. I keep coming back to volume because without it the market cannot enjoy a sustainable trend. And even though it’s summer, notoriously a low volume period, volume needs to increase soon if we are to have any chance at new highs.
New highs will also be dependent on a strong second quarter earnings season, which will begin in two weeks. But preliminary results have not looked good. Bank of America (BAC) has announced a $8.5 billion settlement. The big bank also went onto to say that high mortgage costs will result in a negative net income, or loss, of $0.88 to $0.93 per share. But even great stock pickers like Berkshire Hathaway's (BRK.B) Warren Buffett, the owner of BYD (OTCPK:BYDDY), could have a tough earnings season. The Chinese auto manufacturer reported an 84% drop in net income today as a result of slow demand -- remember, China and its consumer are supposedly a big force behind global economic growth.
Despite the fundamental headwinds, which someday will be important again, the dollar is sinking and bonds are declining. Both movements indicate risk capital is flowing back into the market, and my hope is that aggression will take the indices back up and above this year's highs.