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Expecting Higher Prices Ahead

Expecting Higher Prices Ahead

Green traffic lights against blue sky, close-up (digital composite)

Courtesy of John Nyaradi

Weekly commentary from  Wall Street Sector Selector

It was quite a week of bad news mixed with higher prices, and through it all, we had an almost “stealth switch” to “Green Flag Flying” mode on Friday and so now expect higher prices ahead. 

As I mentioned in an email to a subscriber, the old adage, “the market is never wrong, opinions are,” certainly holds true through this confusing time.  Personally I feel very bearish about the long term outlook, even the medium term going into fall, but for now the indicators say we’re in an uptrend and we should be “long,” and so we are. 

Looking at My Screens 

Market internals continued to strengthen this week and all of our primary indicators have switched to “buy” signals. 

All U.S. indicators point to growing strength and rising prices, and interestingly, many European indexes went to “buy” signals on Monday, as well, including Germany, Italy, France and even the European Financial Sector. 

Sentiment remains bearish by historical averages which is bullish for markets. 

How long this uptrend might last is anybody’s guess, but for now this nascent rally seems strong and could have significant upside ahead. 

The View from 35,000 Feet 

This week’s news was mixed as prices continued to rise.  On the upside all major indexes advanced with the NASDAQ gaining +3%, the S&P +2.4% and the Dow and S&P holding above the all important 200 Day Moving Average.  Technically the markets look very strong while fundamentals were mixed. 

On the upside, the Empire State Manufacturing report came in positive, although lower than expected, industrial production was up, leading economic indicators advanced, Greece was reported to be on track with its austerity programs and the Euro had its best week since September. 

On the downside, housing starts and building permits were poor while initial jobless and continuing claims rose against expectations.  The Philly Fed report collapsed and the all important ECRI report continued to decline and is approaching levels that typically warn of impending recession. 

What It All Means 

Technically we are in an uptrend and I would expect higher prices ahead.  Fundamentally things continue to weaken which bodes ill for the longer term.  It seems that the thesis of a summer rally followed by a decline into autumn and early next year still looks valid. 

All we can do is remain nimble and opportunistic and it looks like we are one week into what could be a 4-6 week rally. 

The Week Ahead 

It will be an important week for economic and earnings reports as we start to move into Second Quarter earnings season.  Housing will be reporting which is all important since a sustainable recovery is largely dependent on that sector, and jobs are a weak spot that also could determine the outcome of this recovery and where we go from here. 

The Fed will make their interest rate announcement on Wednesday which will be widely watched and expected to hold no change.  Earnings will start to come in from the tech sector which is expected to be strong and news will come from retail to offer further insight into the state of the consumer. 

Economic Reports: 

Tuesday:  May Existing Home Sales 

Wednesday: May New Home Sales, FOMC Interest Rate Meeting 

Thursday: Initial Unemployment Claims, Continuing Unemployment Claims, May Durable Goods Orders 

Friday: Q1 GDP 3rd Estimate, June University of Michigan Sentiment Final Index 

Earnings Reports: 

Tuesday: Adobe Systems, Carnival Cruise Lines, Walgreen Drug Stores 

Wednesday: Rite Aide, Nike, Bed, Bath and Beyond 

Thursday: Oracle, Palm, Research in Motion, Lennar Homebuilders 

Sector Spotlight: 

Leaders: Spain, Italy, South Korea 

Laggards: Short Technology, Short Eurodollar 

Last week I was in London which was “World Cup Crazy” with excitement for the tournament running high. I’ve never been a huge soccer fan but certainly the world could use a global celebration about now. The games are fun to watch but the “vuvuzelas,” those irritating plastic horns, have got to go. 

Wishing you a great weekend wherever you may be,

John

Disclosure: EWW, FXI, IYR, XOP, QLD

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