In the process of scanning headlines and analyst reports last night I found it very interesting how many negative reports are being generated about the outlook for the markets. This in and of itself may be a bullish signal for the broad markets, but the topics vary in range relative to rhyme and reason. The most common reason is Europe and the eventual failure of the euro. Greece was downgraded by S&P last night to negative? I thought it was already negative? Either way it is just another issue facing Europe and investors moving forward.
The lack of global growth, banking issues in Europe, banking issues in the US, the fiscal cliff of the US, rising gasoline prices acting as a tax on the consumer, and the drought pushing the prices of soft commodities to two or three time normal levels. These are just some of the issues facing the global and domestic economies. What the final outcome will be is still undetermined, but one thing is certain currently… investors aren’t listening as we see money rotate into higher risk assets. I am not going to go so far as to state that investors have overwhelming confidence going forward, but they do have enough confidence currently to put money to work and push the broad indexes back near the March highs.
All the warnings aside, investors are putting money to work now. Based on the current moves where is money going curruently? Energy has taken on a defined role for the broad markets as the confidence in future stimulus is pushing demand for crude oil higher. There are no signs or evidence to that conclusion, but the prices are moving higher nonetheless. Oil has pushed to $93.60, gasoline is near $3 at the wholesale level, and UGA has climbed 23% since the low the first of July, jumping 2.1% on Tuesday. The refiners have jumped as earning were great with crude stable and prices on the lower end for crude. That may be coming to an end with the current move higher. XOP, iShares Oil & Gas Exploration ETF broke above resistance as well on Tuesday. This is a sector to watch as the energy stocks have pushed higher.
Technology came to life on earnings as the index broke through resistance last week. XLK, SPDR Technology ETF. The leading sub-sector has been the semiconductors (SMH) as they bounced off support at $29.90 and are now at $33.27. The move above $32.70 defined the break through resistance and the target move is $34.50 for now. The role of leadership fits the technology sector well and if it continues short term the broader indexes will benefit.
Europe (IEV) has bounced as well on the Draghi, “save the euro regardless of the cost!” comment. The ETF cleared the $34.20 resistance and has$36.35 clearly in site. The country ETF for Spain (EWP), Italy (EWI) and Germany (EWG) have been the upside leaders. This is a higher risk play as the uncertainty surrounding the comments versus actions of Draghi are still a concern. Watch, take what it offers, but don’t over stay your welcome. Taking short term profits is advisable.
China (FXI) likewise has moved higher and cleared $33.90 as the first level of resistance. The micro trend is up, but the short term downtrend line is in play on the close Tuesday at $35.19. Clear this level and $38.25 becomes the near term target. Watch for the satellite countries to benefit like Singapore (EWS) and Hong Kong (EWH).
There are plenty of opportunities developing in this volatile period. Watch for the leading sector to arise and take advantage of the short term moves. Commodities, Technology, Energy, Consumer Services, Europe, Dividend Stocks and stocks beating earnings are all on the move. Watch, manage your risk and take what the market gives one day at a time. Remember where we started today’s comments, there is plenty of negative in the current market environment, and sentment can shift quickly. Protect your gains and have realistic expectations.