Broad Market Clear Resistance Hurdle

As we discussed in our weekend update, the broad indexes all stalled on Friday at key resistance levels and would need to clear those hurdles if we were to advance higher. The S&P 500 index cleared the 1663 level, NASDAQ 3690 and the Dow Jones Industrial Average moved back above 15,000. What does it mean? The indexes are free to move higher without much in terms of resistance to the next level. That would add another 1.5-2% on each of the indexes above. The EAFE index likewise move back above the August higher as did Europe. The emerging markets built on their bounce off the recent selling as well. Drinks for everyone, as they say, but there is still plenty of work to do going forward.

Stepping back and taking the markets temperature shows more investors willing to step in with the belief the Fed will be user friendly on the stimulus cuts which will likely be announced at next weeks FOMC meeting. The issues with Syria are being discounted despite the comments from the President relative to the need to proceed with some type of military action. In other words, the issues that were bothering the markets over the last two months are not resolved, but investors are willing to put money to work despite the lack of clarity. We still have to keep one eye on the progress relative to stocks, and one on the news for what may or may not happen outside the markets.

The leaders remain technology, finanicals, basic materials, consumer discretionary and energy. The other sectors pitched in the last week on the upside as the indexes stretched to five consecutive days on the upside. Playing follow the leader only makes sense in this current market environment versus attempting to find value. Momentum is in vogue.

Oil has hit $110 per barrel with ease. The primary driver of late has been the issues in the Middle East putting pressure on prices. Some analyst have stated that fair value for crude is $85 per barrel. If that is true, the downside risk is substantial relative to the price of crude. I am not confirming or denying the point, just adding DTO to my watch list for signs that the excess pricing is starting to ease. The US will have plenty to do with that as we vote on what actions to take or not take in Syria.

To Apple or Not to Apple, that is a good question. We currently own a position in Apple, but the challenge is the meeting on Tuesday to unveil a new iPhone. The bigger question is which one? The cheap phone for Asia or the new 5S which is being rumored as the next upgrade for the iconic phone. The hopes are hanging on a successful product introduction otherwise the stock takes a tumble lower. There will be plenty in the headlines tomorrow.

Interest rates have finally stalled relative to the upside rise and the price of bonds have stabilized for now. Based on the way the inflation picture is going, I wouldn’t be surprised to see the yields decline further and see another rally in the price of the bonds. If you are short the Treasury bond with TBT or TBF I would visit my stops and tighten them to prepare for any moves lower if yields which would push prices higher on the bond.

Overall the upside is still in play and the challenge is not playing the guessing game with the markets.  On May 21st the S&P 500 index closed at 1669. On Monday the same index closed at 1671. In between we have been as low as 1573 and as high as 1709. Three and one half months has resulted in a 2 point gain on the index. Patience is a beautiful thing, but chasing the ups and downs in the market have been frustrating to say the least of late. There is still plenty to watch and precautions to take when it comes to managing money in the current environment.