The global markets are starting to look like a game of musical chairs. Everyone is dancing and having a good time as the stimulus flu spreads from country to country. Investors have been happy to join into the game looking for the opportunity in the hope that the stimulus will work. The last three years of pumping money into the global economic system hasn’t worked yet, why will this time be any different? The temporary relief each time has given some hope of the economy igniting, but each time it has fizzled out. GDP projections now stand at 1.5% in the US for the third quarter, and the market has pushed back towards the March highs. The stimulus sounds like a good idea on the surface, but when you look deeper you find that banks aren’t lending, and more importantly, businesses aren’t borrowing. Business isn’t good enough to borrow for growth? It is a vicious cycle and one that we continue to feed. Eventually the music stops and there aren’t enough chairs for everyone.
So, as the music continues to play, what are we watching as we start a new week of trading?
1) The S&P 500 index has pushed to the 1405 resistance mark and looking for the push to the previous higher at 1420. The low volume push towards the previous high is in play, but looks very tired. However, it is hanging on for the promise of more stimulus. The sellers are reticent to step in only to have the Fed announce QE3. The dividend story is helping as well. The continued barage commentary on buying dividend stocks is sucking money in that direction from investors. The trend is higher, but the risk also. Hold and tighten your stops in the event something changes short term.
2) The NASDAQ index got a push higher from the technology stocks last week. The Semiconductors (SMH) came back to life on solid earnings gaining more than 3% on the week. The Networking (IGN)stocks were higher as well on earnings data jumping 7.4% for the week. Look for a move towards 3060 if the strength in the tech stocks remains this week.
3) Small Cap stocks continue to struggle and have not been much help in the bounce off the June 4th lows. If the move higher is going to follow through, the small cap stocks need to add to the move. The S&P 600 index is pushing against resistance at the 454 level. A break above this level would be a boost to the broader indexes short term.
4) Energy has become one of the leading sectors. (Notes on Friday) The price of crude has pushed back towards the $93 resistance level. The attempts to move higher are key to the sector maintaining the trend higher. The services stocks such as the refiners have been leading the broad sector. Watch for the continuationof the move along with some short term consolidation.
5) Retail is still a wildcard relative to providing some needed leadership from the consumer. The data has been mixed and the sector is definitely a story of winners and losers. Those who miss earnings like Chipotle and Priceline get punished and those doing well are rewarded. The consumer has slowed in spending and that is putting pressure on specific stocks. Thus, follow the momentum within the sector versus the sector as a whole. The state of the US economy demands precision by the retailers or they will miss out on growth.
Bottom line… the markets remain questionable at best. There are plenty of negatives hanging overhead, but as long as the thrill of stimulus from the Fed, the ECB and China loom, investors are willing to accept the risk at a low volume pace.