New Quarter Begins

New week, new quarter… more gains? That will depend on the upcoming data from the economy and earnings. Fundamentals do matter in the long term, and what the markets need currently is some insight that the data is improving looking at quarter one and hope that it will continue improving looking forward to quarter two.

The economic data will be watched this week for signs of improvement. Manufacturing, services and jobs lead the headlines. I would like to believe these numbers will matter to investors, but following a week a uncertainty, and then closing on a new high for the S&P 500 index it will be anyones guess. The upside remains in play, but it is in need of a catalyst. Earnings are right around the corner and that may very well be the case, assuming they improved from the fourth quarter.

Looking at the data points over the weekend one would have to assume the upside continues… right? We could argue that point for many days, but the indicators of the Fed’s eternal money dump will keep the markets fluid. The challenges in Europe should keep the dollar on a high note as more money flows into the buck as a safety move. Oil is heading back to the $100 mark and gold is hovering around the $1600 mark. The S&P 500 and Dow have both hit new highs and all is well. We will go with the appearance that all is well. As long as the upside trend remains in play you go with the flow. But, you have to keep your stops in place and protect against the risk of a transition.

The leadership is still coming from the consumer sectors and defensive sectors. While that is a strange combination it is one that is working very well currently. The Consumer Discretionary and Staples have both achieved new highs and steadily improve relative to the technical data. The fundamentals have been positive with the dividend stocks leading the way. The Healthcare and Utilities have equally shown impressive uptrends. I am of the opinion that both sectors are benefiting from technological improvements to help drive profits, but the important thing is there is more on the horizon for both sectors. Throw in the financials and you have the defined leadership of the broad markets.

The concern for me comes in the form of the other sectors which have stalled or moved more in a sideways trend. They lack a spark or catalyst to keep them moving higher currently. Money flow has slowed into the sectors as a result of the activity or lack of a push higher. The rotation to the other sectors has been evident, but that doesn’t mean anything at this point. Technology, Basic Materials, Industrials, Telecom and Energy aren’t done, but they are taking a break. These are the sectors to watch on the week. We need to see some renewed life if the broad markets are to continue the upside short term.

Overall it promises to be another week of data and news that will drive the market towards the beginning of earnings season. Watch and digest the data points for indications on how this will play our short term. The longer term view remains cloudy from our view. One day a at a time as the market returns from a long weekend.