Over the last few months, markets have enjoyed a strong recovery on the hope that an economic recovery would take shape. For much of this time period, markets have been content to observe economic data which has improved moderately, or in some cases, simply failed to get much worse.
Green, Yellow, and Red. Those are the colors of an American traffic light. Green means go. Yellow means caution because the red light is about to appear. Stop if you can do so safely. Red means Stop. Currently, the markets are signaling a yellow light which again, means caution. It means take a step back and review your homework. Are your hypotheses proving correct in this market environment?
Today’s announcement from the Conference Board was especially telling as not only did the numbers come in below analyst expectations, but among the key numbers each component declined. In the case of the overall confidence survey, the June figure came in at 49.30, down from 54.80 in May, while the Present Situation component came in at 24.80, down from 29.70.
Understanding, absorbing, and processing the lessons of “markets past” is often one of the key ingredients in putting together a winning investment program and forging a successful investor. While no two economic climates are ever the same, and no two stock markets are ever the same, successful investors tend to have an established historical knowledge that can be employed to help assess complex situations.
While the Dow Jones Industrial Average reached a new rally high in June the Dow Jones Transportation Average did not, with many technicians pointing out the non-confirmation (shown below). Today’s article looks at why the transports have been lagging and whether or not their recent weakness relative to the industrials will continue.
Over the last 10 weeks there can be no question that the capital market ‘herd’ has come storming back into the arena for speculation, on the prowl for signs of global recovery and reflation. The idea underpinning the advance has been to surf the coattails of the market gods, -- the global central banks -- which have been creating liquidity as never before.
Back in April a piece was penned that looked at how oversold the market was on a statistical basis (“Possible vs. Probable”). The basis for the article was to look at the percent deviation of the S&P 500 from its 200 day moving average (200d MA) and how many standard deviations it was below the mean, comparing the current experience to prior bear market sell offs.
Since we began getting cautious on the US Stock Market back on May 12th with the S&P at 912, the index has retained a bullish bias, but has nevertheless largely remained in a range (+/- 30 S&P Index points around 912) with lows in the 880 area and highs in the 940 zone, abutting the January 2009 peak.
The “less bad” economy that started on a technical bounce in March continues to find support from decelerating and up-ticking economic indicators such as consumer confidence, ISM manufacturing and non-manufacturing, new jobless claims, and durable goods. The most important of these is consumer confidence and the follow-through we need to see in retail sales (demand).