Ignore the Data, Just Keep Buying!

All is good on Wall Street… ISM Manufacturing data reverted to July 2009 levels and below 50% showing a retraction in growth relative to the US economy. China declined equally, and Europe is just plain awful. But, hope springs eternal with the hope of stimulus. Aah… the smell of free money in the trading pits. Damn the reality, full speed ahead. Investors are looking for more stimulus from the central banks around the world and US. Interest rates are already at zero and anymore quantitative easing isn’t going to change the picture much. Hope is not an investment strategy, but it is the one playing out currently in the markets.

I hate to look at the facts and confuse everything, but did anyone really see the ISM data? The short story is we are right back where we were three years ago before the Federal Reserve and current administration embarked on a multi-trillion dollar spending spree to stimulate growth. But, according to all the political spinning, all is well and we are ok with 8.2% unemployment, zero percent interest rates and 1.9% GDP growth. Forest Gump said it best, “stupid is as stupid does!”

I would like to make some sense of the current move taking place in the markets, but it is pure speculation that more stimulus will help. What will help is a simple does of reality and some hard decisions to put the economy back on track. The challenge is we don’t want to make those decisions for fear of offending someone, somewhere, somehow. Thus, as an investor the trend is your friend, regardless of what reality is, at least for now.

Bonds rallied on a weaker ISM number. The ten year bond yield fell back to support at 1.58%. A break below this level opens the upside for the bond again and is a bad sign for stocks short term. Watch IEF, iShares 7-10 Treasury Bond ETF for a break above $108.50 if yields continue below support.

Crude oil tested the spike higher moving down to $83.71. This is still something to watch short term as the jump came on the bailout of Europe with it’s new TARP/stimulus plan. If the numbers globally don’t improve going forward the price will not hold. The jump in energy stocks followed the price of crude and they are facing resistance at some key levels. Watching to see if they have enough momentum to break through theses levels.

S&P 600 Small Cap index has been leading the charge off the recent lows. The index moved above 438 resistance and 446 to close at 449. Look for a move towards the 465 level as a short term target. The acceleration in the short term uptrend is providing the needed leadership for the broad markets.

All of the leaders held their respective moves from last week, but paused to rest on Monday. The leadership is an interesting group with financials, healthcare, homebuilders and Industrials taking on the role. for now we take what the market gives and keep looking forward cautiously. I am still not a believer this trend is sustainable relative to the data, but the momentum is in play. Take the trade opportunities that are presented and protect against the downside in the event the party stops unexpectedly.

Have a Happy 4th of July and thank those who made, and continue to make our freedom a privilege.