Friends
Impressive, is the best term I can use for the resiliency of the stock market over the past few weeks. Talk about a lot to deal with. We’ve had strife in Egypt and then Libya, the devastation in Japan, and now we’re focusing, again, on the European debt crisis in Portugal and Ireland among others. Stocks have had more than enough reasons to go down, and in fact, we may not be out the woods just yet. The bears and short-sellers had to feel very good that the tipping point was here. But after a drop of about 6%, the averages have snapped right back and recovered more than ¾ of the downturn.
On a technical basis, we were watching to see if the S&P 500 could get above 1295 and hold. Well, we got through 1300 and closed at 1309 yesterday. As we sit, before the opening this morning, 1300 and 1295 become our next two support levels and 1320 becomes major resistance on the upside. The global news story has certainly not gotten much better, other than the nuclear situation in Japan, and we have earnings season just around the corner, so stocks still face some persistent headwinds. On the positive side, we just might get some more decent news on jobs in next Friday’s unemployment report. Until then, traders will be taking their cues from global events.
The question must still be, how is the market not down more, considering all the bad news? It seems to us, that the continuing theme of easy central banks (remember, don’t fight the Fed) providing massive amounts of liquidity is still the main story. Managers have to put money to work, and the alternatives to stocks are not particularly attractive. Add to that, our continuing theme of money moving from fixed income (bonds) to equities (stocks) and we have a lot of money that keeps coming back to stocks. How much more bad news can the market take before it cracks? Or, has the market taken the bears’ best punch and traders are now emboldened to bid up prices?
We will be watching the technical levels for conformation of a trend, and we will be paying a lot of attention to the upcoming earnings season. In the ever-changing global environment that we deal with every day, there will be winners and there will be losers. The Eagles once wrote in their classic hit “Hotel California” – “they stab it with their steely knives, but they just can’t kill the beast”. Sounds like how the bears are feeling this week with regards to the market.
Have a nice weekend everyone.
