Creeping Upside, Still Sluggish
- Creeping upside, still sluggish. Waiting on earnings for the next move?
- Short-term German bond yields turn negative as Europeans seek safety of German, US debt.
- Consumer Credit expands again as US consumer appears, repeat appears, to be on the comeback trail.
- US debt now matches US economic output.
- SOX is trying to provide backup for the other indices that remain in position to break higher, but just have yet to do it.
Stocks remain a bit pensive on the threshold of earnings.
Looking at the SP500, it was another day of lateral indecision. At least it was not a pullback, just more lateral movement after last Tuesday’s upside break. Seems like the indices cannot move further into this April-July range. SP500 remains on the cusp of moving above the October peak, which would put it in that range again. It cannot quite make the move. Other indices are already there. The Dow made the break already, and it looks solid as it tests laterally. Perhaps it will help lead the move to the upside. The SOX was helping things out on Monday the best it could. It received an upgrade. The whole sector was upgraded, particularly the communications semiconductors. This is not the normal time of the year for these to move. We will see if they can make the break, hold it, and help the market break out to the upside.
Intraday there was that low to high action. It took awhile to get there, and it had to give up some early gains in order to show us that move. It was somewhat volatile. Not that positive low to high action for the bulls. Stocks started modestly higher. They started fading back, and then an early rally was given back into mid-morning. Futures were all over the map. There was an early rally, a giveback to a session low, but then a slow and steady recovery into the afternoon session and the last hour. They fought off some selling, moved back up to session highs, and then underwent more pressure into the close. They did manage to hold on reasonably well, and, of course, they held on to that low to high action. That is a positive for the bulls.
SP500, +0.25%; NASDAQ; +0.1%; Dow, +0.27%; SP600, +0.35%; SOX, +1.96%.
SOX almost logged a 2% gain, throwing its weight around and trying to help the indices move higher. I think it kept the overall market from sagging a bit on Monday.
TUESDAY
There is not a lot of data coming out. Wholesale Inventories are out. They are important. It is about the glass being half full or half empty. There is also the earnings story, and that will take precedence. After hours AA reported a 0.03 loss. It is closing three of its smelters. I went by one of those this weekend on the Texas coast. Everything down there is orange. Very interesting. It is not because they are all Texas Longhorn fans, I will put it that way.
LIZ cut its outlook after hours, as noted. Earnings are taking precedence. One of my readers wrote in over the weekend saying that it seems like earnings just ended and now we have to put up with them again. That is true, but we will use them to our advantage. We have to watch out for the individual stories, but overall we are looking for that rise into earnings to make us more money on this rally. Then we bank some profit and get out of there. That is the plan. We will see if it can continue to play out.
As for specifics, we have the SP500 working laterally. The Dow is in a very nice lateral test as well. Let’s also throw in the small caps to get all of the NYSE indices that we follow in there. NASDAQ is moving higher. It is not that strong. Though we are looking for NASDAQ and the action on SOX Monday to provide a supporting role for those other indices, and basically help the entire market move higher over the next 2 to 3 weeks. As I said in the beginning, it was not necessarily going to be a barn burner. It will still be volatile. Things are not decided at all, and that is a testament to our second thesis that things may not be so great as we get deeper into 2012. With the economic improvement we have seen thus far, with the indices showing good setups, you would expect more of a big break to the upside. It has not occurred yet, but it still could happen. We just have to look at what the market is doing and look at what it is giving. We will take what we can and then reevaluate.
I am looking at a lot of plays, and I have been mulling over what to put on. A lot of stocks show that they could make about a 10-12% move up to the next resistance. That is fine. Overall you might say that does not give much room to make the play. We would really like something to give us 20-30% stock gain to the upside. Or at least 15. That is nice, but you have to also juxtapose that with our position that we will only get two or three more weeks to the upside. 10% would be hand-in-hand with that kind of move.
You have to reevaluate and adjust your new plays. When you do that, realize that we will be buying less because we already have a lot of open positions. We have been building them as the market showed it would start to move up and actually started to move up. We will still get some as it breaks to the upside, but we want to start curtailing our buying versus ramping it up. We have a lot of positions already. Our thesis is that we will only get 2 to 3 weeks more to the upside. That would give us nice gains on what we already have. We would have to look for those plays that can give a solid, decent gain to make the risk/reward worth it for us for another 2 to 3 weeks to the upside. Bear that in mind as you look for additional plays on the ones we put out to consider, how set you are with your portfolio, and how much extra you want to put to work as the earnings season gets underway.
Stock Splits & IH Alerts, Editor
InvestmentHouse.com
