The market was up modestly on the day… at least the NASDAQ (+0.6%) and the S&P 500 Index (+0.2%) were up. The Dow managed to close lower as Verizon, General Electric, Travelers and Johnson & Johnson led the way down. Alcoa was up 6.7% with the stock going vertical over the last week, but didn’t change the complexion of the index on the day. All of that said, and the headlines remain on the negative side. The concerns about a correction continue to surface and the drums are getting louder in reference to the downside. One challenge has been the inability of the S&P 500 index to break above the 1850 and close with some momentum.
We have talked about the three primary issues facing stocks short term… first, earnings have been lackluster shall we say. That was expected as the growth estimates were the lowest since 2010. Second, economic data has been okay, but the concerns over job growth remains a thorn for many going forward. Third, the Federal Reserve and the cut to stimulus. In fact, if you give the liquidity dump by the Fed credit for fueling the rally over the last three years, what happens when they withdraw the liquidity and economic growth is only 2%? There in lies the biggest challenge looking forward from my view. Therefore, the concerns are on the table, but the buyers remain in control? This is where caution is advised. If Wall Street is selling into the rallies (look at today’s intraday trading activity.) who is buying? Those late to the party more than likely.
We still have to take what the market offers and keep moving forward. Worrying will only give you a headache. Take the trades as they are presented, set your stops at the risk level you are willing to accept and keep moving. Sounds simple enough, but the challenge comes in the action or execution in light of the noise.
No economic data until Thursday and leaves the market to trade on earnings tomorrow. IBM disappoints after-hours along with AMD. Texas Instruments is cutting jobs and … you get the picture. Some good news some bad news and we will look at how investors react in the morning heading into the trading day. If the S&P 500 index can’t find the strength to move above the 1850 level watch for another test of support on the downside short term near the 1810 mark. Patience is the key along with understanding your time horizon. The short term you look the higher the risk. The longer term picture has not changed and unless we sell back below the 20 and 50 day moving average not much will change near term. Let it play out and take what’s working. Utilities up 1.1%, NASDAQ 100 up 0.7%, Energy up 0.8%, RIETs up 0.7% and Healthcare up 0.6%… they are working higher and worth watching moving forward.