Europe Ready to Move Forward?

The Cyprus saga continues or is it finally over? Late Sunday the government is rumored to have a deal that will cut assets by 40% for accounts over 100,000 euros. The interesting part, Europe is higher long with the euro being higher  against the dollar? Interesting response considering how the market responded last week with a lesser tax on deposits. Goes to show that investors don’t know what they like or dislike about this deal.

We start the week with some momentum from earnings and facing a full slate of economic data! Thus, I am expecting more uncertainty and volatility from the markets this week. Remember this is a shortened trading week with the market closed for Good Friday.

Scanning the sectors for rotation we continue to see some developments and warnings in the making.

  1. The S&P 500 index was led by Consumer Discretionary (XLY) and Consumer Staples (XLP) last week. The leadership is needed if the broad markets are going to make any attempt to move higher, or to a new high for the S&P 500 index.
  2. Basic materials and industrials are struggling. Weakness in earnings and warnings looking forward from Fedex and Caterpillar. That may be a warning of what is on the horizon for the broad markets. Eyes open, and stops in place.
  3. Energy (XLE) is consolidating between the 10 and 30 DMA. Still looking for leadership from the sector short term. If Cyprus really is good news for Europe, look for oil to move higher. The services companies have pulled back in a test in relationship to the volatility.
  4. Volatility index jumped last week above the 13 level with a week of ups and downs. A break above 14.5 is a negative and a move back below 13 is a positive. Watch the futures for a possible move on volatility.
  5. Technology (XLK) is stuck in a tight trading range and looking for some upside catalyst. The news from Oracle didn’t help matters to end the week. The large cap stocks have been the drag on the sector. SOXX fell back to the bottom side of the uptrend channel again to test the uptrend. Still on watch for move higher.
  6. Gold started the trek higher again on the Cyprus catalyst… will it continue with a resolution?  Watch for the upside to break through $156.40 for possible upside trade if the move follows through. A break below $153.50 opens the downside opportunity. We are looking in both direction currently as the outcome will determine direction emotionally for gold.
  7. Interest rates fell on the 30 year bond to 3.13%. Volatility is picking up again in the bonds as fear factor and uncertainty rises. Watching for the trade to be defined from the current up and down action.
  8. Watching the global market response to any deal in Cyprus.

This will be a busy week for the markets with the close of the first quarter and another month. That puts all the economic data back on the calendar for progress or erosion. First quarter earnings season will begin soon and that will set the tone going forward.  The Cyprus issue will take center stage today and set the early tone for the markets.

The key is to remain disciplined, focused and cautious. There are more issues on the horizon than we can all understand currently. We continue to take it one day at a time ever mindful of the trend in place and emotions that drive investors to act irrationally.