- Better economic data should have aided the Thursday reversal . . . but it didn’t.
- Who cares category: GDP clicks up a tenth in its final revision
- Durable goods orders post a very decent showing with some good upside revisions.
- Geithner admonishes Congress that the budget agreement needs to include ‘revenue’ aspects, i.e. tax hikes. We have already bailed out their favored companies and now they want us to bail them out?
- Even with the selling the market is still in position to bounce, but there is just no upside follow through.
- Darn few earnings warnings as the warnings season draws toward its end. Lower energy could lead to surprises for Q2 results, and with the market set up for a bounce that could give us the fabled summertime rally.

MARKET SUMMARY

Unable to hold another promising upside move, but still hanging in at support.

What can you say about the action on Friday or, for that matter, the entire week? Thursday there was a reversal off the 200 day EMA. This was after the market tried to rally early in the week but sold off. It held support again and bounced nicely to end the session. On Friday the sellers came right back in, and the indices fell back down to trade and close in the same range they have been in for the past couple of weeks. There was some better economic data that may have aided the Thursday reversal and continuing movement to the upside. China was more upbeat with respect to pricing pressures. It thinks it has things under control. That is like a coach getting a vote of confidence when it comes to central banks and governments talking about having inflation under control. It seems like the market figured it out anyway; propaganda is still one of the main exports from China.

There was other good news. The final GDP number came in at 1.9%, and that was a tick better than the 1.8% prior. Durable goods were very solid at a 1.9% gain. When you take out transports, they were 0.1% less than expected, but it was good-enough data to make a difference. Yet it really did not. Futures were lower from the open and did not recover too well. The market did put on a good move — or at least tried to put on the face of a good move. It gapped lower but then reversed to rally to the upside, turning positive. Then the sellers came in big time and sold the market into the mid-morning. It tried to rebound and progressively failed the rest of the day, making lower highs and lower lows into the close. Looking at the chart, they did not implode; they were just unable hold their ground.

NASDAQ had its issues thanks to ORCL. Its earnings were decent but not enough to impress investors. It slid back to the 200 day EMA but is still in that recent range. The small caps look decent. They slid back as well, but they are well inside their range. There was a relatively minor loss when looking at other action in the market. Again, it was a day that found no traction. It was part of a rather frustrating week. Everyone trying to catch a rally to the upside or a selloff to the downside was somewhat disappointed. That does not mean we did not make decent money this week on the trades we closed. We made good upside money. Not huge gains, but it did what we wanted it to. Caught a nice move up and made some great money there. We enjoyed that but could never get the break one way or the other. We banked some good gain on short term and some longer term we held. We could not get the move we wanted for the new stuff, however.

Did I say it was a bit frustrating? Yes. I also want to reiterate that the indices are still holding a key support level. They found no purchase on Friday after what looked to be a good reversal, but they did not give up the goods. They are still there in position to move. The question is whether they are going to get the impetus they need to make the break higher. They have to find some kind of follow through, and they will. The market always does, but it does it in its own time. First you have frustration that things are not moving well. You lose a little interest, and the next thing you know you have the break one way or the other.

I do not want to sound pollyanna, but even with the Friday pullback, the market is still in position to rally. Why am I focusing on a rally versus the downside? We all know I feel the bias is to the downside. I think things are ugly in the economy and that it will bear more bad fruit for the market. Near term, however, it is still holding up. Despite the negative news and the fact that the market has sold off and failed to hold a bounce higher off the 200 day EMA — whether you are looking at the SP500 or the NASDAQ — it is still holding in there. Thus I feel it can still deliver the upside bounce. That is just a feeling coupled with some patterns I see from decent stocks, but it is strong enough for me to keep looking to the upside. It is not strong enough for me to give up on the downside and close all of our plays. As a matter of fact, we picked up some QID (NASDAQ) just to balance out the portfolio. We have some upside on the SSO (SP500) and on the SMH (SOX). We have some IWM out there. We also needed more balance, so we took a bit of the downside on the techs to give our index plays a bit of balance and a little hedge.

We will wait and see which way it breaks and go heavier that way. For now, I always want to try picking up money on these interim swings. With the indices holding at some key and relatively near support, we have to stay open to the idea that the market can still bounce despite how frustrating it has been in trying to hold a move.

MONDAY

Next week there is a load of economic data. We have Personal Income and Spending, which is always important. Case/Shiller and Consumer Confidence is out on Tuesday. Pending Home Sales on Wednesday. Thursday there are Initial Jobless Claims and then the Chicago PMI. There is also the ISM on Friday. That is the national manufacturing, ant that will be very important. It is expected to come in just over the 50 level, the threshold for expansion and contraction. At 51 it could still be expanding. I do not think it will contract. There are only two regions, and they only did it this month as well. It usually takes a month or two before the national reflects that. If they keep heading down, of course it will go negative. That would be a blow to everybody — the current administration and all of us. It is not good at all.

There is a lot of data out, and we are also getting very close to earnings season. Have you noticed that there have been few warnings and most of them have been positive? They are talking about how good things will be, so we might have a decent summertime earnings season. It is very possible because we still had a low dollar. We may be having some lower energy prices, although they will not factor into this as much. As we know, oil had already broken its trend before the SPRO was opened. That is our little secret I guess. It peaked back in late April, so you would say there has been a goodly amount of reduced energy prices during this quarter. That would help the bottom line for most every company out there.

There is the potential that we get upside surprises yet again. That would be a boost of confidence even if it does not boost the market. This is a tough time of the year for the market, but we have late-summer rallies. We are getting set up for a late-summer move. Yes, the fabled summertime rally that everyone looks for and often never sees. It does happen, and it is usually in July into August before things get gnarly in September and October.

There are setups for upside, and then there are setups for upside. If we look at what the market is showing us right now after this pullback since the late-April peak, we are getting a setup. We are holding old support, holding the 200 day EMA that has risen below the indices. They are in position to rally. Do they rally on the numbers? They usually start rallying ahead of time. If we go into next week with few warnings, the market starts to sniff out that it may be a good earnings season. Then you start your rally before the numbers come out. You get a few boosts on the actually numbers, the rally holds for awhile, and then it runs its course and starts to roll over into September and October. That sets up nicely.

That leads me right back to where I started the day, looking at a frustrating week. The market was up, down, looked like it was going to go back up, but then it could not make the move. That is okay. We are still in a position to make that rally. We have exposure upside and downside. We have some plays we can throw either way. We are well-represented right now. We do not have to take a lot of new plays. We will have some plays to look at, but we will not go crazy looking for every little play out there. That would not be productive at this point. We have very good stocks that can move for us. They are in positions to do so.

We have already taken gain on quite a few of those positions. If we get another good move to the upside, that is just lagniappe. We will look for more positions. There will be some to the upside and some to the downside. I want to play the break whichever way it comes. Things are frustrating. People are getting frustrated in the market. You can see the traders and the financial stations getting that way. That is good. The market will break one way or the other. I think there is still a good possibility for an upside break before it rolls over hard once more. That will make us some money to the upside. I am not against that. I am not against making money to the downside either.

As a matter of fact, I am pretty much for making money regardless. That is what I’ll try to do for you, and what you have hopefully been able to accomplish. I will see you on Monday, and we will see if that bounce delivers. When it does, do not get greedy. Take the gains and enjoy the move. Dump the positions that are not working too well that we get a better exit point on. Then play the downside if things roll over.