2-21-2012
Although it was a 3 day weekend since the markets were opened, it seems like an eternity. The Greek bailout talks over the weekend have gone from allowing Greece to default and kicked out of the EU to more conciliatory rhetoric yesterday.
The markets have been taking a breather lately moving sideways; probably waiting for some clarity. The short term indicators have been losing some steam, but the longer term indicators remain bullish. And by most short term technical measures, the markets are overbought.
Risk has been increasing as the markets never go straight up, but investors on the sidelines have been getting impatient. They are now telling themselves ‘this time will be different.’
And money flows are pouring into equity mutual funds as of the last reading. The most in almost a year. Therefore, at this point, any pullback should be mild. Unless of course we see a complete collapse in Europe.
Longer term investors should hold the positions they own, and any new positions should have an exit strategy in place. I have added new positions on Friday for new accounts/clients who transferred in with too much cash.
I purchased the ProShares Ultra NASDAQ 100 (QLD) which moves 2 times the NASDAQ 100. Again, I am using a broad ETF for easy, diversified exposure with a single trade. If things reverse, I can exit with one trade and raise cash quickly.
Traders, especially those following the 14 day Stochastics, are getting buy signals. If you are a seasoned trader following a momentum or trend strategy, you have (or should have) an exit strategy in place.
As I write this newsletter, it just came across the wire: the Greek bailout has been reached. Greece will get their next tranche – 130 billion Euros. One would think the markets would respond quickly and positively. Thus far, the reaction has been muted but positive.
In overnight trading (Monday 10:20 p.m. CST) most of the Asian markets are in the red but have come off their lows heading in the right direction. The US dollar was strengthening against the other major currencies, especially the Euro. The dollar was up over 1/4% against the Euro, a big move by currency standards. But now, the dollar has reversed and is actually down against the Euro. Another big move in a matter of minutes.
Gold and silver are up moderately, but oil is up $1.68 to almost $105/barrel. This is over concerns about the Iranian embargo against Europe. If oil continues to climb, it will put pressure on and even derail our recovery.
Our US equity futures are bucking the Asian trend and in positive territory. The DOW futures were up 70 points, the S&P 7, and the NASDAQ 11 earlier. But surprisingly, swooned down during the settlement announcement and then picked back up slightly. The DOW futures are up 52 points, and both the S&P and NASDAQ futures are up 5 points but seem to be gaining strength again. Look for a solid day today.
Today the only major economic report we have out is the Chicago FED National Activity Index drawing on 85 economic indicators. It includes everything from industrial production and capacity utilization to unemployment and manufacturing. Below zero means we are “below trend growth” and inflation is easing. It was negative in November but went positive in December. January should be positive if the FED policies are working.
We have 15 companies reporting earnings on the S&P today. They include Home Depot (HD), Wal-Mart (WMT), Macy’s (M), and Intuit (INTU) during market hours. Then after hours, we have Chesapeake Energy (CHK), Dell (DELL), Nabors Industries (NBR), and Kraft (KFT).
In the broader market we have RadioShack (RSH – before market), Walter Energy (WLT – before market), and Clear Channel Outdoor Holdings (CCO). Companies reporting after the bell include Community Health Systems (CYH), Brocade Communications (BRCD), and Forest Oil (FST).
