Weekly Market CallOut of nowhere the market exploded to new highs this week. Amid continuing concerns over the sub-prime situation and the state of the economy, investors were able to seize on a few glimmers of good news. Retail sales were not as bad as expected and the news that Rio Tinto is buying Alcoa demonstrates that the buyout game continues with exuberance.
By the end of the week, investors had absorbed ratings agencies marking down more sub-prime debt, more lackluster retail sales data and higher oil prices. Still, the market held its gains. The Dow was the prime winner this week, gaining 2% and making its biggest percentage move in nearly four years. The S&P and NASDAQ turned in respectable showings of 1.4% and 1.5% gains. On a somewhat troubling note, the Russell 2000 only managed a 0.04% gain.
What's coming up for the market this week? Plenty of potentially market moving data will be reported including the following: NY Empire State Manufacturing Index, PPI, CPI, Industrial Production, Capacity Utilization, Housing Starts, Building Permits, Initial Jobless Claims, Philadelphia Fed Survey, FOMC Minutes and Crude Oil Inventories. Whew! And it's earnings season, to boot. Among the companies reporting will be Intel, Merrill Lynch, Novellus, Coca Cola, J&J, Yahoo, a bunch of big banks, Google, Microsoft, eBay, SanDisk and so on. To cap it off, Fed chief Bernanke will provide semi-annual testimony on the economy and monetary policy before House and Senate panels. There's no way I would venture to guess where the market will end up by the end of the week!
ETF CommentsIndexes: the ETFs that track the major averages spent the first part of the week in the doldrums and then rocketed upward on Thursday. On Friday, they managed to hold on to their gains. New all-time highs were set by DIA, SPY and IWM and a new 6-year high was set by QQQQ. Looking at the charts, there were upside gaps established on Thursday. DIA and QQQQ showed the most extreme moves. IWM looks to be moving up more calmly in an ascending channel.
Real Estate: In spite of interest rates on the 1-year Treasury note remaining stubbornly above 5%, REITs have been trying to recover. The iShares Dow Jones US Real Estate ETF (IYR) off its recent bottom but is no where near being out of the woods yet. Drawing the trend line down from its high back in February to where we are today, it can be seen that it's getting close to poking its nose above the line but in terms of the moving averages, it's still well below the 50-day and 200-day moving averages so there is plenty of resistance out there. A recent pick is Health Care Property Investors Inc. (HCP) (see my post discussing health care REITs). They are somewhat in the same boat as IYR but are closer to displaying a reversal; indeed, the TradeRadar BUY signal is beginning to flash.
Financials: the financials are trying to establish a bottom also. The Financial Select Sector SPDR (XLF), for example, after dropping below its 200-day moving average has now recovered and closed the week just above it. Just in time, too, as its 20-day MA was about to cross the 200-day in a bearish downward movement. The KBW Bank Index ETF (KBE) is still deeply underwater, a few points below its 200-day MA. Closing the week just above its 20-day is good but the fact that the 50-day is crossing below the 200-day shows there is still some bearish activity to be worked out. This continues to be a sector to stay away from until the picture on interest rates clears up.