2-17-2012
The markets rebounded yesterday, but was it on strong economic data and earning? Yes and no. The economic data was solid as Initial Jobless Claims came in at their lowest level in almost 4 years and manufacturing picked up steam.
But the main reason was the European Central Bank (ECB) agreed to “exchange” Greek bonds of 50 billion Euros for new Greek debt “with the same features” but significantly extending out the maturity (?). As a result, when news spread of the Greek-ECB deal, stocks rallied into the close yesterday finishing near their highs of the session with solid gains.
The NASDAQ demonstrated the most strength of the major indices up 1.5%. And this was with Amazon (AMZN) down 2 1/2% and mega cap Apple (APPL) up less than 1%. Due to size, both of these would put a drag on the rest of the NASDAQ. The good news is Apple was able to keep above the psychological $500 century mark.
The S&P 500 and Dow Jones were up slightly over 1% and 1% respectively. But the mid and small caps really led the charge outperforming all the major indices.
Up Volume was 86% on the NYSE and 85% on the NASDAQ, but total volume decreased slightly from Wednesday’s levels on both exchanges. This is good for the bulls because we don’t want to see a “blow off” top.
The markets are technically oversold but in a trending market they will continue to become more oversold. Also, we have just barely broken through resistance on the DOW and S&P. Their graphs are almost identical so I just included the DOW graph. Are the DOW and S&P at a double top, or will they continue the next leg higher. That is why you need to remain active and pay attention.
DOW Jan 2011 - Feb 16 2012 - Double Top or Breaking Through
On the NASDAQ, we have easily gapped above resistance (see graph) and you have to go back years to find the next resistance level. I believe the NASDAQ is more susceptible to a larger pullback as it has gone too far too fast.
NASDAQ Jan 2011 - Feb 16 2012 - Above Resistance
For right now, I am going with the trend and did not cull my positions or raise cash. The old adage “the trend is your friend” has never been more true. That said, the trend can, and will, turn on you quickly.
Today we have the Consumer Price Index (CPI) and Leading Indicators which is a smorgasbord of different leading indicators by economists from manufacturing orders, building permits, average weekly initial jobless claims, stock prices, etc..
We have only 4 earnings release today on the S&P. They are Ventas Inc (VTR) and Campbell Soup (CPB) both before market opens. Then during the regular trading session, we have Heinz (HNZ) and Constellation Energy (CEG). Other companies reporting include Digital Realty Trust (DLR), LifePoint Hospitals (LPNT), AMERIGROUP (AGP), and Hospitality Properties Trust (HPT).
In overnight trading (Thursday 9:20 p.m. CST) the Asian markets are mixed. Gold, silver, and oil are marginally higher. The US dollar is weaker against the Yen and Pound, but flat against the Euro.
Our US equity futures have reversed their earlier evening gains and are now all flat. Again, give your positions room to breathe, but stay alert. This market is overextended and due for a pullback.
On Friday, Campbell Soup (CPB) and Lincoln Electric (LECO) are among the companies expected to report quarterly results. The day’s economic news will include a new reading for the consumer price index.
