We Still Need Leadership to Move Higher

Thursday’s move prompted by a commitment of the ECB to back the euro survival gave hope to the global markets. The gains were enough to push indexes off the cliff and give breathing room to the current trends. As we conclude a roller-coaster ride for the week all eyes are on the ECB to take action and not just talk. The comments from the ECB of course put the focus back on the Federal Reserve meeting next week. The expectation now rises that they will put more quantitative easing in place, and the Bank of England policy meeting is on Thursday, and they will do the same. We may see a concerted effort to put confidence back in the financial markets to produce stimulus for global growth. If that belief gains traction so will the markets. Amazing how perception changes when investors get what they want, regardless of if it actually works for the economy longer term.

The cry to ‘save the euro’ maybe the rally cry for stocks around the world if enough confidence is built among investors. We can be assured that next week will be one of the more interesting weeks of the year. The end of the month brings economic reports and the activity among the central banks will be watched for stimulus. Throw in the heart of earnings season and you could see some interesting movement in stocks next week.

Technology stocks were the big movers on Thursday as earnings led the way. Akami, Western Digital, PCS, Sprint and Seagate all were up double digits on the day. The SOX index gained 2.2% to follow up on the sold gains from Wednesday. That puts the index back at the 377 resistance level. The last two moves above this mark made it to 390 and stalled. If the SOX can follow through to the upside it would go a long way to helping the broad index hold the move higher as well. Networking (IGN) has bounced as well on earning from  Juniper Networking to help the tech sector overall. The sub-sector has been in a downtrend and a drag on tech, but if the bounce follows through on earnings, all the better for the broad sector. Software (IGV) gained 1.4% on Thursday, but has plenty of work to do to get back the uptrend. If Technology is gong to resume any leadership it will take a coordinated effort from the parts to move the whole. Semi’s are the key going forward and a break of the downtrend line off the April high wold be a key move to start the reversal.

Financials moved back above $14.40 on XLF on Thursday. The rescue mission for the euro is a positive for the US banks overall. However, it doesn’t change the current revenue and profit outlook for banks. As much as I would like for the sector to make a unified move higher and lead the US markets, it is a stock pickers sector, plain and simple. Based on the complexity of the current financial markets it will come down to management as to who wins and who loses overall. As much as Bank of America was beaten down by their earnings announcement, they are doing the right things to be profitable longer term and in the current environment for banking. The stock has been holding the key support level at $7 and remains a stock to watch in the sector overall. JP Morgan is recovering from it’s issues with the trading losses and bouncing off support. They are on the watch list of opportunities in the sector as well. But, scanning the sector overall shows the winners and the losers. Regions broke out to a new high, Goldman Sachs is at the top end of the current trading range poised to move higher. Keycorp has developed a solid uptrend off the June lows. Wells Fargo remains a leader and testing the highs near $34.50. Moody’s made a solid break from consolidation on earnings. Bottom line, scan the sector for the winners.

I continue to talk about the need for technology and financials to lead the way. If we are going to develop a sustainable upside they are the key components to take the market higher. Without their participation we will continue to see volatility and a trading range for the broad market indexes.

In the weekend  update I will cover where the opportunities are heading into next weeks trading and update the watch list to reflect those opportunities. If you are not a member, and would like to see the benefits of having full access to our research every day, email us at info@SectorExchange.com to try it now.