Skip to main content

Market turns on a dime last week -- now, fundamentals will rule

The market turned on a dime this week. Pundits struggled to find a decent reason. An increase in the IMF's GDP forecast for 2010 was modest, a drop in weekly jobless claims was welcome but still modest, retail sales reports for June were mixed (though industry experts say June is generally weak so don't worry about it) and ISM Services were actually slightly lower that expected. Nevertheless, the herd swung into buying mode and stocks jumped 5%.

The debate now switches to whether the bull is back or whether this is just a flash in the pan rally,soon to be forgotten. The blogosphere naturally provides both sides of the argument. Well known investor and hedge fund manager Doug Kass declared we have seen the bottom for 2010 and it's upward from here. On the other hand, we have people discussing the possibility of Elliot Wave theorist Robert Prechter's call for Dow 1000. No doubt things will end up somewhere in the middle.

The view from Alert HQ --

In the meantime, let's look at where we are today. The data for the following charts is generated from our weekly Alert HQ process. We scan roughly 6040 stocks and ETFs each weekend and gather the statistics presented below.

In the chart below we count the number of stocks above various moving averages and count the number of moving average crossovers, as well. We then plot the results against a chart of the SPDR S&P 500 ETF (SPY).


In the last eight weeks, the majority of stocks have been below their 20-DMA more than half the time. This week, the majority is above. Though we see improvement, the majority of stocks we tracked are still below their 50-DMA for the third week in a row. It's hard to see on the chart but the number of stocks whose 20-DMA is above their 50-DMA actually declined slightly this week despite the surge in stock prices. That shows how deep the damage from the previous week was.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.


Barely 16% of stocks can be considered to be in an up-trend and that's after a week in which major stock market indexes rose 5% or more. More than a quarter of the stocks we track can still be considered to be in a down-trend and that is an improvement from last week when the number was close to half.

As for the stock signals at Alert HQ, the signs are very encouraging. Out of 94 Trend Busters, there was only one SELL signal. There were 220 Swing Signals, an usually high number, and every single one was a BUY signal. These are the stocks that have been first to break out and I encourage you to take a look.

The outlook --

It's all about earnings. This coming week is considered the start of second quarter earnings season with Alcoa (AA) reporting on after the close on Monday. Other big names bellwethers include Intel (INTC), JPMorgan Chase (JPM), Google (GOOG), Bank of America (BAC), Citigroup (C), and General Electric (GE). Results are generally expected to be good as year ago comparisons are relatively easy. Investors, worrying about a slowdown in the second half of this year, will be paying the most attention to forward guidance. Management statements will be analyzed with a fine tooth comb.

In addition to earnings season, there is a pretty big slate of economic reports to be released this coming week. We will see more retail sales reports, export/import prices, business inventories and minutes from the last Fed Open Market Committee meeting. Thursday is a big day with initial jobless claims, continuing claims, Empire State manufacturing index, industrial production, capacity utilization and the Philadelphia Fed manufacturing index. Finally, on Friday we get CPI and the Michigan Consumer Sentiment survey.

With earnings and data coming at us in mass quantities, perhaps the market will finally begin to be ruled by fundamentals rather than fear and computers. At least that's my hope. In any case, there's lots going on this coming week so hold on to your hats.

Comments

Anonymous said…
Do you have list of stocks whose 20-DMA is above their 50-DMA in Alert HQ? thx!!
No, I don't. The program just counts them as it goes along. Sounds like a good addition, though. Stay tuned; maybe I can pull it together in the next few weeks.

Popular posts from this blog

Brazil - in a bubble or on a roll?

A couple of years ago, no one recognized the real estate bubble even though it was under everyone's nose. Now, analysts and bloggers are seeing bubbles everywhere they look. One of them, they say is in Brazil whose Bovespa stock market index has doubled in the last 12 months. Does the bubble accusation hold water? I don't think so and here are 7 reasons why Brazil is by no means a bubble economy: Exports have held up over the past year thanks to demand from China for Brazil's soya exports and iron ore. This was helped by the the Brazilian government's drive to improve trade links with Asia and Africa. Export diversification, spurred by a more active trade policy and increased focus on "south-south" trade under current president Lula, helped mitigate the decline in demand from OECD (Organization for Economic Co-operation and Development) countries A "sensible" economic framework has been in place since the 1990's. This has included inflation

Trade Radar gets another update

Some of our data sources changed again and it impacted our ability to load fundamental/financial data. In response, we are rolling out a new version of the software: 7.1.24 The data sourcing issues are fixed and some dead links in the Chart menu were removed. So whether you are a registered user or someone engaged in the free trial, head over to our update page and download the latest version. The update page is here:   https://tradingstockalerts.com/software/downloadpatch Contact us if you have questions or identify any new issues.

Time to be conservative with your 401K

Most of the posts I and other financial bloggers write are typically focused on individual stocks or ETFs and managing active portfolios. For those folks who are more conservative investors, those whose main investment vehicle is a 401K, for example, the techniques for portfolio management might be a little different. The news of stock markets falling and pundits predicting recession is disconcerting to professional investors as well as to those of us who are watching our balances in an IRA or 401K sag. What approach should the average 401K investor take? Let's assume that the investor is contributing on a regular basis to one of these retirement accounts. There are two questions that the investor needs to ask: 1. Should I stop putting the regular contribution into stocks? My feeling is that investors making regular contributions are being handed a present by the markets. Every week the market goes down, these investors are lowering their average cost. When markets reco