Friday’s market action was both quiet and unimpressive, on the heels of Apple’s earnings report. The bottom of last weeks trading, coming up but once again missing new highs in concern to earnings season, has not been able to drive the market to new highs. The Knick’s losing 4-0 to Boston is disconcerting as well.
The S&P tested 1300, in March and punched through to the mid 1200s with futures touching 1253. It rocketed back and has tested 1300 again in mid April. That test was met with buying, and the 1300 level held. There will be a number of further tests of the 1300 level. While Bearish sentiment continues to be appropriate under the current conditions, if the support levels hold a few more times, that sentiment should reverse and the market should punch through to new highs. However, odds though favor at least 2 more pull backs before the month of May is out.
Last week’s Economic data at best argues that we are not tumbling back into a recession. But it feels like we are very vulnerable. The Job Market is months away from being flooded with job applicants out of college and graduate school. The housing market is still saturated with little movement. The most disturbing problem the country is facing is oil prices. How many times will America have to live through these violent moves in oil before we truly take alternative energy more seriously? Perhaps it is time to take Alt energy stock more seriously. The consumer confidence we have see of late is in significant jeopardy of reversing. Anecdotally I have begun to hear numerous stories of prices at the pumps affecting consumer’s decisions.
A quick look at the charts makes one wonder if many of the most recent moves in stocks are just dead cat bounces. Apple and General Electric both got hammered after reaching resistance levels and failing. This type of action typically represents good shorting opportunities. The rapid movements in the markets the past week has left significant gaps between support level. While the NASDQ futures appear to have support at 2376, a lower move would potentially find support at 2356 but more likely 2334. A breakout stretch to the upside offers a fantastic shorting opportunity. While risk reward remains to the short side, the market may continue to trade in a tight range before it breaks lower for the month of May. While neither index appears overbought, the NASDQ appears a bit rich. Patience on the short side will lead to greater reward.
The S&P futures have short-term resistance at 1334 and then again at the 1338 level. Any confirmed move above 1338 would be a real breakout. As it seems the dollar is finding a base, concern will be building that the swooning commodities prices may be due for a correction. This should put a lid on that 1338 level. Slowly building into short commodity names may be good way to hedge any value investing, as the beta on the commodities will be significantly higher. It does not take much of a short in those names to protect a long book of basing stocks.
Ironically the financials look cheap, but if one looks back to the difficult May, June, & July periods of 2010, the Banks were one of the few groups that held their own. Many people understand that there may be no catalyst to drive the markets to new highs, unless the economic data really confirms an improving economy. That said, they find it difficult to understand why the market would pull back, or correct. The stock market is like a Bipolar Disorder patient, as am I. There is no clear explanation as to why? It simply is a fact that with a Bipolar patient there is inevitably a depressive period coming. The Fed has misdiagnosed the patient. Easy money is not the answer. The public has ignored the repercussions; and the S&P puts AMERICA on negative credit watch. A very far-fetched concern, but the longer the government goes without reducing our deficit, the more serious the issue becomes. The truth is we should have already gotten a downgrade. Continuing to print money will have global impacts of unforeseen repercussions. Our reserve currency status has been the one saving grace. In lieu of that status America would already have been downgraded. The deficit ticks higher every day. Obama’s team is starting to shift focus to the elections that lies ahead. Their concern is less America and more Obama. How do we not screw up the third year of the presidency?
The violent uptick in Syria is one of the final flames that will ignite a pull back. The latest is the closure of the border with Jordan. Syria, like Iraq, will not waver in the face of protests. The French will not have the cojones to interfere in Syrian affairs. The French have so much credibility given the amazing job they are doing in Libya.
Certain consumer names such as Target seem attractive. My local Target is always crowded. Urban outfitters look like it has come into a level of support. CSCO and Yahoo shouldn’t go much lower. There are attractive names; the concern is that in any form of a correction, everything will get cheaper. So what to do? This is a time to prepare. Formulate your battle plan. Send out soldiers for small strikes. I sold a few futures at 1335 this morning, preparing for the move down expected later in the week. Expect disappointing revenues and improving earning from many companies reporting this week. It continues to be a sign that you can squeeze margins but you can’t generate revenues out of thin air.
While stocks feel like they have bounced, you will find very few that have made yearly highs. Alcoa has barely recovered since earnings and the pace of M&A activity is still relatively tepid. Inflation is not. The administration is creating a propaganda ploy to fool the public into believing that inflation is under control. Most of America does not care what core PPI is; They care about the cost of a quart of milk at the supermarket.
Where does all this leave things? Quiet. Too quiet. Quiet, before a storm.