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Market Update 03-09-10

The major stock market averages have been climbing back toward their 52-week highs. For the S&P 500, for instance, we’re only about 1 percent below the January highs around the 1050 area. Depending on how the S&P (and Dow Industrials) act in the near term it should set the tone of the market for the next several months.

For instance, we’re coming up on the S&P’s 200-week exponential moving average. If the powerful rally we’ve experienced in the last year is nothing more than bull trap in the context of an on-going secular bear market, and there’s still a strong argument to be made that it is, then that level is a logical place for the market to stall again.

Failure to close above the 1050 market for several days running will likely shake investors’ confidence and lead to at least a modest pullback in share prices, probably resulting in another retreat back to around 1050.

If, on the other hand, the S&P does hold above 1050 for several days, the technical breakout will bring in more buyers who are likely to drive share prices even higher. Looking at the index’s long-term chart, the next leg up would probably carry us to around 1220, last seen back in September 2008. That area represents formidable overhead resistance that stretches all the way back to 1999.Read more...

Market Update 03-02-10

The bifurcated economy continues to plod along. The manufacturing segment is doing fairly well thanks in large part to strong export demand, which has risen for seven consecutive months. The service sector, however, continues to struggle.Read more...

Market Update 02-23-10

After managing strong gains last week the action in stocks this week promised to be relatively quiet. Yesterday was true to form, kicking things off with one of the second-slowest trading days of the year so far—and one of the lightest non-holiday related days in quite some time.Read more...

Market Update 02-16-10

The European Union’s plans for aiding the ailing Greek economy continue to dominate the financial headlines this week. Last Thursday, EU member states pledged to come to Greece’s rescue—should they ask for it—without offering solid details on an aid package. That news settled equity markets while simultaneously hurting rather than helping the euro. The news also buoyed precious metals.Read more...

Market Update 02-08-10

We’re watching the problems in the European Union unfold and can only speculate how far the contagion can spread. The credit market is increasingly betting on turmoil in the E.U. as the spreads between the countries running high budget deficits, such as Greece, Portugal and Spain, have widened dramatically in recent weeks against those of the more fiscally responsible nations like Germany and France.

The architects behind the E.U.’s monetary union failed to institute a mechanism for enforcing compliance with debt ceiling targets. So while the Greek delegation to Brussels promises the rest of the E.U. the country will behave itself, its track record, coupled with vocal political opposition at home raises serious doubts that any real progress will be made with its belt tightening.

The E.U. has relative few options at its disposal. On one hand, while Greece represents only 3 percent of the E.U.’s GDP, the country is on the hook to many banks across the continent. So simply booting it from euro-land, which would force Greece to bring back the drachma and precipitate a default on its debt, isn’t a palatable option.Read more...

Market Update 02-02-10

 Stocks are rallying this week after several weeks of selling. But we wouldn’t be in any hurry to pronounce the correction over. Our work suggests that equities are likely to remain under pressure in the weeks ahead. Read more...

Market Update 01-26-10

Last week stocks put in one their worst showing in a year, with blue chips dropping nearly 4 percent. Market breadth was lousy and volume remains on the light side. This week share prices are staging a half-hearted rally, but we suspect stocks will continue to have a downward bias in the near-term. Read more...

Market Update 01-19-10

Heightened concerns about the economy caused both stocks and commodities to retreat somewhat last week. Investors are looking at fourth-quarter earnings reports and even good news is being shrugged off. There have been plenty of disappointments in the quarterly reports coming in which haven’t helped either. But so far the setbacks have had a limited adverse influence on the major averages lasting just a day or two, before buyers come back into the market.

The economic data, meanwhile, also continues to offer conflicting indications of where we’re headed. Manufacturing is recovering, although the recession wasn’t brought on by excessive capacity in industrial production, so we’re not inclined to read too much into this. Consumers, on the other hand, still have their hands full with a weak housing sector, high unemployment and relatively few job openings. As long as consumer confidence remains soft, it’s hard to see any rebound occurring in this important segment of the economy.

We’ve been concerned with the strong impact rising commodity prices could have on the economy. So the recent retreat in oil prices from $83 a barrel to around $78 might seem comforting, but there’s a chance the damage is already down. Traders are pushing crude prices lower in anticipation of a weaker economy to come. Keep in mind that even after this modest pullback, crude oil prices are still more than double what they were a year ago. Such increases have historically been bad for both the economy and the stock market.Read more...

Market Update 01-12-10

Earnings season began with Alcoa reporting its results yesterday. Traditionally, it’s the report from this aluminum giant and the Dow Industrials member that marks the start of the season – and this time, the season certainly did not start with a high note.
 
Alcoa earnings disappointed – the largest U.S. aluminum producer’s profit trailed estimates, despite strong metal prices. High energy prices were one of the main culprits.
 
Higher energy prices were also behind the widened U.S. trade deficit reported for the month of November. The lower dollar helped U.S. companies to sell abroad; the overall increase in exports was achieved for the seventh month in a row. The size of the increase, 0.9 percent, to $138.2 billion, reflected increasing overseas demand for food and American-made automobiles and semiconductors.
 
Signs of recovery, however, are still few and far apart.
Read more...

Market Update 01-05-10

People are by nature optimistic. This point is underlined with each reset of the calendar. The can-do spirit, best exemplified in personal resolutions, mostly of the diet and exercise variety, is fresh in everyone’s mind. Likewise, the feeling that better times are on the way is reflexive. This psychology is at least partially behind stocks’ tendency to rise in the early part of the year. Strong stock market returns in year just ended certainly don’t hurt either.

So it’s not surprising that we started the trading year off with a bang yesterday. Further signs of strong economic growth in emerging economies, namely China, plus an improvement here in the U.S. in the Institute of Supply Management’s Manufacturing Index and with factory orders have helped to bolster investor confidence.

Less than bullish readings yesterday on construction spending and today’s surprisingly large decline in November pending home sales, which dropped 16 percent in contrast to expectations for only a 0.2 percent decline, have largely been ignored.

Stocks should continue to have an upward bias for the near term, although positive returns are by no means a slam dunk. There’s plenty more economic data due out this week, but the real bellwether for the U.S. economy will be the employment numbers to be released on Friday. A surprise reading either way could set the tone for the market for weeks to come.Read more...