It Depends On Your Perspective

We are all in hock to our eyeballs. The government is printing money around the clock. The printing press is running hard everywhere, not just here in the U.S.A. How on earth are we going to bail out the Greeks, or the Portuguese or the Italians? Who is going to restructure this mess or refinance that fiasco? 

We hear or read things like this around the clock. But, the stock market continues to climb. Employment numbers came out Friday. The results were better than the most optimistic estimate. Critics are saying that the numbers are calculated incorrectly. However it happened, the Giants scored more points than the Patriots yesterday. There is one reason the Giants won the Super Bowl yesterday, they scored more points! The market went up sharply last Friday because the jobs number was much better than anticipated. If the number was below expectations the market would have sold off. 

I told you that I would keep you up to date this year on the Leading Economic Indicators (LEIs). They continue to improve. If I read a ten foot high stack of reports on the economy, I have to come up with a conclusion at the end of the reading. A look at the overall economy, using the LEIs as your guide, tells us things are getting better. I could include charts and readings to support this, but I don’t want to bog you down. The take away on the macro picture is positive. The LEIs continue to improve. That is a good thing. 

If you feel that the negative factors I mentioned in the first paragraph are more important than the LEIs then I guess you will just have to miss out on the rally that is going on. I guess it is a matter of perspective.

That is my take on the macro view of things. Let’s now turn our attention to the technical side of things. Last week I told you try to keep it simple. 1-2-3-4. Stocks are basing, advancing, topping or declining. I try to place as much of my portfolio as possible in basing and advancing stocks and try to avoid topping and declining issues. Last week I told you that 74% of stocks in the S&P 500 were in stages 1 and 2. After the strong performance in the S&P 500 last week, 82% of stocks in the index are in strong technical condition. 83% of secondary issues are either basing or advancing.

So, I will continue to follow my drill. The LEIs are continuing to improve and better than 80% of the stocks available for purchase are in sound technical shape. That tells me to be constructive on the market. As the weeks roll by I will continue to give you a read of the LEIs and the technical condition of the market. If those readings deteriorate I will let you know. If and when that happens I will become less constructive and more defensive on the market. 

Last week the NASDAQ broke above recent highs. So, now we need to see if the other indexes can follow suit. The S&P 500 needs to close above 1371; the Dow needs to take out 12,876 and the Russell 2000 needs to close above 869 to confirm the move by the NASDAQ. If these levels are not breached in the next week or so we will likely see a controlled correction. Here are the support levels you should focus on. Short term support for the Dow/SPX/NASDAQ/Russell is 12,670/1320/2848/809. If you see things sell off sharply for a few days, likely on negative headlines, 1300/12,520/2780/786 are our support levels. Based on the current strength of the market I do not believe the last set of numbers will give way.