Weekly Market CallThere is no doubt investors were more optimistic this week. All the averages put in strong showings with all but the Russell 2000 racking up more than 2% gains.
The week was reasonably free of bad news so investors had an opportunity to focus on what good news there was: durable goods orders surged and new home sales for July surprised to the upside. Bank of America taking a stake in Countrywide Financial was looked at as a vote of confidence that the worst in the real estate sector might be over. The VIX eased and so did Treasuries.
This is not to say that there weren't some disappointments this week. There were more announcements of other lenders with liquidity problems (Thornburg Mortgage) and a number of financial firms closing their mortgage units altogether or announcing layoffs.
There was a bit of merger news to remind investors of the good old days. E*Trade and TD Ameritrade are said to be talks, Rio Tinto is still bulking up for acquisitions and the Dubai government is buying into the MGM Mirage.
It was a pretty good week but there is still considerable uncertainty and a continuing tug of war between the bulls and the bears. To help investors figure out the direction from here, we will see a big list of economic news released this week: Existing Home Sales, Consumer confidence, FOMC minutes to dissect, Initial Jobless Claims, Core PCE, Chicago PMI, Factory Orders and so on.
ETF CommentsIndexes: Using the TradeRadar software to look at the ETFs corresponding to the major averages (DIA, SPY, QQQQ and IWM), we see pretty much the same story across the board -- they all remain in the TradeRadar SELL zone. Looking to see if the recent upturn has been enough to generate a new BUY signal since the market peaks back in July, we see only very weak signals that under normal circumstances would not be actionable. It is clear that an up trend has not yet been firmly established.
Financials: XLF and KBE are deeper in the SELL zone than the major averages. KBE has bounced back sufficiently to generate a BUY signal that is weak but not as weak as those mentioned above. Is KBE getting ahead of itself or is it a leading indicator?
Real Estate: There is still no hope for the homebuilders and XHB shows little in the way of establishing a bottom. REITs have been somewhat firm, however, and we see IYR, though still in the SELL zone, sporting a weak but very sharp BUY signal when looking at the price action starting in February. According to our guidelines it is too weak to be actionable but it makes me wonder if it's time to take our profits in SRS, the inverse REIT ETF.