The last time I wrote the market was flirting with support at its 200 day moving average and pessimism ruled the day. I gave you the key support figures. Support held and the market roared ahead. As a former mentor once said, “never forget the market is geared to make as many people as possible look foolish.” Those that only saw the negative side of the ledger have been left to scramble to buy this rally or explain their overt pessimism.
The market roared off its recent lows on economic numbers that beat expectations. Economic numbers had been deteriorating significantly. The strength of recent numbers has surprised people. The bulls have said recent activity has been overly influenced by the earthquake in Japan. They feel that as Japanese activity gets back on line the tech and industrial sectors will improve and the market will rebound. Time will tell.
The market spiked last week on better than expected employment numbers on Thursday and then sold off Friday on weaker than expected jobs numbers. You think you’re confused! I never really put too much stock in any one employment number; we seem to get bombarded with so many. I did see a few very pessimistic articles about the jobs picture this morning. I suppose it is entertaining to read overly optimistic/pessimistic musings, but unless it is going to help you run your portfolio why bother!
If you buy stocks that are basing and advancing, while selling those that are topping and declining, you will generate strong performance over time. The percentage of stocks in the S&P 500 that were in the good category a few weeks ago fell to 33%. That is from a high around 80% not too long ago. The recent advance has brought that number back to the 50% range, 52% to be exact. In my opinion this is the environment where you can do the most for clients. Take the time to match the technical and fundamental pictures for buy and sell candidates. If there is a 50/50 percent chance of picking a winner focus your efforts on the names that are either basing or advancing and make sure your portfolio is stocked with names that are technically attractive.
Long term resistance for the S&P/Dow/NASDAQ remains 1371/12,880/2888. Long term support is in the 200 day moving average area 1258/11,860/2599. Intermediate support levels are 1290/12,100 and 2740. Earnings season begins to ramp next week. I am willing to wager that the majority of names that report strong earnings with better than expected guidance are in the basing or advancing stages technically. The negative surprises are already giving you clues by beginning to roll over. Earnings season will provide us with guidance for the remainder of this year and our first looks into 2012.
