Last week we discussed the issue of the S&P 500 index setting a new high, “Are We There Yet?”. With the intermission caused by worries over Cyprus here we are one week later with the same issue in front of us. I guess we could say the scenario of never getting there is in play, but with the close last night at 1558 we are again only 7 points from the high. That would put our planning hat on again for a possible move to the upside. Thus, take some time to review the post on how each scenario could work out. I am leaning towards a break higher and then a reversal as uncertainty in the economic picture remains a growing concern.
The FOMC meeting ended on cue Wednesday with Mr. Bernanke and the twelve dwarfs all falling in line to state the company policy. With no changes to the previous release, and no indication of changes that were eluded to in last months minutes, investors moved forward and the market posted a solid gain on the day. Case closed… right? I am no quite so sure about that. The Fed agreed to carry on with the QE infinity, but the wheels are turning on when to dial down the amount of intervention by the Fed. This is an issue that isn’t going away, and until the next minutes are released or the next Fed meeting, all thing will carry on as normal. The Fed continues with putting more money into the system without much to show in terms of growth.
While Cyprus attempts to cut a deal with Russia or whoever else will lend them 7 billion euros to keep the system running, all eyes are on China today. PMI rose to 51.7 in March as a preliminary reading showing improvement over the February post of 50.4. Inflation is reported as “behaved” or under control, and all is well in China. Does this data help put an end to the short term downtrend in play currently on the chart? FXI bounced 2.5% on Wednesday and the reaction to the news/data today should give some indication of investor sentiment or belief in the upside going forward. We have posted the ETF to the ONLYETF Watch List. China is still an uncertainty looking forward and our outlook remains short term.
The upside move on Wednesday did provide some sectors worthy of attention relative to potential breaks or continuations of the respective uptrend. Regional banks (KRE) tested the 10 DMA and proceeded back to the previous high. I like the strength of the sub-sector as we conclude the first quarter. The fundamentals are improving and their balance sheets are getting better. This points to increased profitability by the banks and offers reason for a continuation of the current uptrend in play. As with any investment, there will be bumps along the way, but the outlook remains positive.
Global infrastructure (IGF) is making progress to move above the current consolidation and resistance on the chart. Filtering through the ETF for opportunities you see plenty of mini breakouts in the charts. The mixture of sectors, utilities, shipping, construction, etc, show positive signs for the fund. The ETF was posted to the Sector Rotation Watch List.
Healthcare bounced back from the test as well pushing back near the previous high. This remains one of the leaders for the broad market index. We continue to manage our holdings in the sector as well. The biotech sector has been a key leader and a previous position in the ONLY ETF Model until hitting our stop on Tuesday. Pharma (XPH) was up nicely on Wednesday as well posting a new high. The healthcare providers (IHF) is pushing to a new high as well showing the overall strength of the sector in the current uptrend.
The sub-sector of Media (PBS) continues to be one of the leaders in the consumer services (XLY) sector. The ETF broke to a new high as well on Wednesday. The consumer remains alive and well, at least according the stocks in the sector. The retail (XRT) ETF move back near the high as well. This remains a holding in our models.
Bottom line… Back to the melt higher mindset for investors? If Wednesday is any indication the answer is yes. That doesn’t mean we can relax and forget about the potential of the sellers gaining control of the market at any point. There are plenty of analyst willing to jump on the negative side of the data and rant about why the market is going down. Eventually they will all be right, but until then, take what the market gives and manage your collective risk.