The S&P 500 index moves to resistance at 1390 and eyes the March highs near 1420. Is there enough faith in the economic picture to drive the index higher? Will Europe and the ECB decide to act quickly to provide stimulus to the European economic picture? Regardless of the reason the market continues to act like it wants to move higher. Investors remain optimistic about the stimulus providing some growth. At some point the Fed, the ECB, somebody has to act in order for this move or any future move to sustain itself. For now this it nothing more than hope and that makes it a dangerous market overall.
Oil jumped 4% on Friday? Some have tied the jump to improving economic data and the outlook for demand to rise. Really? Take a look at the GDP data the last two quarters and the forward projections for the balance of the year. The ISM Manufacturing data shows contraction, not expansion. Maybe the weaker dollar or the fact there are a couple of storms brewing in the Gulf of Mexico? I am more inclined to go with the later and treat the rise in oil as a trade short term. Demand remains a reason oil has not rallied all summer. Gasoline however, has moved back towards the highs in March. This is something to watch short term as we all know the hike is a tax on the consumer short term.
Is there any leadership? This remains a nagging question for me. Where is the leadership for this move? Technology has made a move above the top end of the range and looks ready to take on the roll of leader. XLK cleared $29.22 on Friday after a test of the move on Thursday. Apple has moved back to the top end of the range near the $615 level. Semiconductors made a move above the 200 day moving average and close at $32.85 on SMH. This is a key level to clear on the upside, but the sector has moved nearly 10% off the low on July 23rd. Thus far tech has provided the needed leadership to bounce, but is there enough to lead the broad indexes higher?
Financials remain a disappointment overall, but do show some strength. They are not providing the leadership needed to push the markets higher however. XLF has moved back to resistance at $14.85, but the banks continue to be mixed in the current bounce off the July 23 rd low. Low interest rates are killing a big part of their income stream and the regulations are impacting their ability to generate income from other sources. Still a sector to watch for a push higher if the broad markets are going to move higher in follow up to Firday’s move.
Healthcare is dragging as the providers put some downside pressure on the sector. The reality of costs in the new Obama care provisions are sinking in and impacting analyst estimates looking forward. The sector (IHF) has dropped nearly 10% since the high on July 18th. The ETF is resting on the 200 day moving average. A break lower may worthy of a short opportunity based on the fundamental data.
The VIX dropped sharply on Friday in response to the jobs report supposedly. Just as a side note, dont’ you find it interesting that there were 163,000 new jobs added in July and nearly 90% of those were added in the services sector, but when you break down the ISM Services number it showed employment dropped to 49.3 from 52.3. The ADP private sector jobs report also showed a contraction in services jobs? Go figure. Just goes to validate the saying that figures never lie and liars never figure. Besides that, the VIX did decline below the 16 mark and are set up to test the March lows near 14. Investors are showing no signs of worry and are content for now to put money into equities.
As we approach a new week of trading Monday’s have not been good. The last nine weeks the market has sold lower on Monday. There are plenty of question marks in place and few answers to go with them. The push higher off the June 4th lows remains in play. It has been an erratic move to the upside, but it has been positive nonetheless. Are we running out of steam? Is the ECB going to act near term? How will the Fed interpret the data from Friday? Do they act in September? All of those issues were in the headlines over the weekend. For now we go with the trend and see how this all plays out. The key is to manage the risk you are willing to accept and keep digging for the opportunities.