Nothing could better describe the investors indecision than Monday and Tuesdays market activity. The selling one day caused by weaker economic data and buying on the other as interest rates in Spain retreat. Simplifed justifications I know, but for illustrative purposes it makes the point. The investor lacks confidence and thus the tug-o-war relative to their conviction to hold or sell stocks.
As good as the day was for the broad markets, nothing really changed. The shift from testing support to testing resistance would be the biggest observation looking at charts. The S&P 500 index pushed back to what was the furst level of support near 1392. If it can move through this level it would have a shot at heading back to the previous high of 1420. All worth watching short term to see if the sentiment can shift back to the buyers.
We remain in a trading range being driven by a lack of clarity. Spain’s lower yields today can be higher tomorrow. The conditions in Spain have not changed, nor has the economic climate in Europe. As we have discussed over the last three weeks, the worries will have to be worked through and clarity gained relative to short term direction. Making predictions in the midst of a trading range will drive you crazy. On Monday you believe it is going lower and on Tuesday the belief is the opposite. Put them together and my belief is playing out, volatility within a defned trading range with a downside bias.
Financials bounced after selling on positive earnings data. Citigroup received an upgrade from Meredith Whitney pushing the stock up more than 3% on Tuesday. Goldman Sachs beat estimates and continues to struggle. XLF, SPDR Financial ETF moved back towards $15.50 which is the level it needs to break above to resume the upward trek in the sector. Breaking the sector down one sub-sector that is a drag is the brokers (IAI) which are testing support at the $23.60 mark. This is a key sector is the S&P 500 index is going to make serious run at the previou high. A break above the $15.50 mark would offer a trading opporutnity short term.
Technology (XLK) tested support at $29.25 and boucned on Tuesday. After hours Intel annouced earnings which were ahead of expectations, but evidently the whispter number was higher and the stock sold down 3% after hours. The impact overall in the sector will be watched today. The sector plays an equally important role if the broad market is to make a run at the previous highs.
The divergence in the price of gold versus the mining stocks has been a big topic of choice in the media. Until there is justifiable reason for investors to invest in the mining stocks the discrepency will remain. I agree that logically the difference should not exist, but if the belief is gold prices will fall near term the miners are not going to rally. Give investors a valid rational for gold prices rising or stabilizing at the current levels and the gap will narrow. Looking at a chart of GDX, Market Vectors Gold Miners ETF it is testing the lows near $46. The downtrend is clearly established and bounce back near the $50 mark is not out of the quesiton, but technically there is not clear reason to own the stocks. I will wait for things to gain some clarity and a move towards breaking the downtrend line before jumping into the sector.
This remains a market that demands patience as this trading range and volatility plays out. The up one day and down the next does make for any logical trading based on my strategy, thus we remain patient and let the opportunities present themselves.