Market Set to Churn Higher

The market followed through on the move higher from Friday and is testing the upper resistance as the S&P 500 index attempts to move towards the previous high at 1420. Despite all the reasons the market should not be moving higher, investors continue to add risk to portfolios with equities. The large cap stocks have been the catalyst with dividend stocks getting all the press. Regardless of what I or anyone else thinks of the move off the June 4th lows, itĀ has been consistent in maintaining the move higher with volatility in a upward trend channel.Ā 1405 is the next level for the index to push towards short term.

Short covering in Europe continues to unwind as the Draghi effect is working for now. It is still amazing how he talked speculators in off the cliff to believe the ECB will fix what is wrong with the euro and the EU. It may well happen in time, but the fact he was able to pull it off without doing anything was remarkable. Even more interesting is how quiet Germany has been during all the announcements by the ECB. I wouldn’t count them out as a spoiler to the plans, but for now everyone is happy to buy into the story Draghi and the ECB are telling.

Europe (IEV) broke higher on Friday and followed through on Monday with a move above the 200 day moving average. Volume was up on Monday to show some belief in the move. If however, the short covering is the motivator this rush to the upside will slow. Not a big fan of speculating in markets where the risk is disproportionately higher due to outside events, and this is one with the sovereign debt issues hanging overhead. Spain (EWP) and Italy (EWI) both made solid moves to the upside and are part of the catalyst for the move in Europe. Germany (EWG) made a move higher as well closing on the 200 day moving average. If you like risk, there are plenty of trades on the moveĀ higher in the European markets. The biggest risk is Germany not supporting Draghi’s efforts near term. Watch and manage downside risk short term.

Technology tries new role as leader. The index moved above resistance and propelled the NASDAQ index towards the 3000 mark on Monday. The Dow Jones Technology Index broke above the top end of the consolidation pattern and look ready to move higher short term. The earnings have been better than expected in many stocks and thus the renewed interest in the sector. If the index continues to lead the look for a short term target on the NASDAQ to hit 3055. IYW, iShares Technology index reflects the move higher in technology stocks, and XLK, SPDR Technology ETF shows the move in the large cap stocks within the sector. Watch for the leadership to continue if the broad market is to move higher, and semiconductors (SOXX) are the leading component worth watching in the tech space.

Retail (RTH) and Energy (XLE) are helping lead the push higher as well. Energy is broadening out its leadership across the sub-sectors. Retail is stillĀ a stock picking sector overall. Look for both to add to the upside move going forward. Industrials and materials have moved higher as well, and the continued push in those sectors would lead some to believe that global growth is picking up. I am not convinced of the that issue, but it is something to watch near term, especially as China renews its commitment to growth in the second half of the year.

Still a dangerous market and we have to manage riskĀ relative to what is happening on the horizon.