Courtesy of John Nyaradi
This week major indexes stopped at major resistance, so once again, we find ourselves on the “knife’s edge, a precarious balance between going higher and falling off the cliff.
On My Radar
In the chart of the S&P 500 below, we can see how price stopped at 1332 which is exactly the resistance level at the top of the most recent columns of Xs and Os, and we see that we’re still in “bearish” mode with a price objective of 1160.
A move higher to challenge the 1340 level would indicate a breakout to higher prices while support is at the 1250 level.
Chart courtesy of StockCharts.com
Last week offered another round of mixed news on the data front and more “Fed Speak” regarding potentially higher inflation and the possibility of higher interest rates or the end to easing ahead; this kind of talk could certainly give pause to the liquidity fueled rally of recent months.
The View From 35,000 Feet
Last week’s big news was the much ballyhooed and welcome improvement in unemployment claims and the unemployment rate which dropped to 8.8%.
The wrap up of news looks like this:
Positive:
? Unemployment claims decline
? Feb. Personal Spending rises
? Feb. Pending Home Sales improve
Negative:
? February Personal Income declines
? Jan. Case/Shiller Home Price Index declines
? March Consumer Confidence declines
? MBA Mortgage Index declines
? March Chicago PMI declines
? February Factory Orders decline
Beyond the economic data, oil continued its climb to above $107/bbl, the highest since September, 2008, and yields on short term Treasuries hit nearly yearly highs as the “Fed Speak” turned to discussions of the possibility of higher interest rates ahead and/or the possibility of an earlier than planned exit from QE2.
The big question here is what happens after QE 2 ends.
Over in Europe, Portugal saw its 10 year bond yield rise to 8.5%, a record since the establishment of the Eurozone, and both Fitch and Moody’s downgraded the country’s debt to just above junk as a bailout looks more and more likely.
The European Central Bank appears poised to raise interest rates as early as this Thursday while at home the government officially runs out of money on Friday as Congress wrangles over how much to cut from spending and from where the cuts should come.
Meanwhile the war in Libya goes on and appears headed for a stalemate, no surprise there, and Japan continues struggling with its nuclear accident and the ongoing fallout, both real, economic and political.
What It All Means
The U.S. economy appears to be improving, now to the point that Fed intervention is less salable, and so we find ourselves at a turning point where we’re likely to find out if the recovery is, in fact, sustainable without “Big B” keeping his foot on the gas pedal.
It certainly appears that rising interest rates are in our future and the punchbowl is running dry, and those two events mark a major inflection point going forward.
The Week Ahead
Major Issues/Themes: The major issues and themes to watch for this week will be how/when/if Congress solves the budget debate and manages to keep the government open past the Friday deadline, European action on interest rates, and the war in Libya. Economic data is light and earnings season “officially” begins on Monday, April 11th, with Alcoa reporting after the close.
Tuesday: March ISM Services
Thursday: Initial Unemployment Claims, Continuing Claims
Friday: February Wholesale Inventories
Sector Spotlight
Leaders: (NYSEArca: ECH) iShares Chile (NYSEArca: INDY) iShares India Nifty Fifty (EMFN) iShares Emerging Markets Financial
Laggards: (NYSEArca: EWJ) iShares Japan Index (NYSEArca: NUCL) iShares Nuclear
Wishing you all good things,
John
Click here to learn more about John’s book and for a free membership to Wall Street Sector Selector
