The Dow was up another 29 points on Friday and closed above 10,500, which is bullish behavior. The Dow Transports and Utilities, along with the Russell 2000 and the Nasdaq 100 all made yearly highs. The S&P is trailing due to weakness in the financial sector. Full Article
It’s a small world and it’s changing. Now, when Asia sneezes, the U.S. market catches cold. The Chinese Red Share index in Shanghai dropped 13% over the last week, precipitating a domino effect that rippled through global bourses. The news that triggered the selling has to do with fears that 1) China’s banks are curtailing lending; 2) foreign investment in China remains weak; and 3) signs of industrial recovery are spotty. Probably $150 billion of bank loan cash found its way into the Chinese stock market this year, but new bank loans in July were one- quarter the level from June. Full Article
The market is baiting the bears and remains resilient despite being overbought. Financials and materials are particularly strong, while tech is correcting modestly. It is possible that these leading sectors can simply zig zag sideways for a while and then resume their advance later this month. Full Article
Despite an increase in selling pressure, with decliners leading advancing issues by 2-to-1, the S&P 500 managed to hold above the 1000 mark yesterday. We can thank the financials, which have been rallying in their own world. Full Article
The S&P 500 hit the 1000 level yesterday, as expected, but showed no signs of vertigo. Nevertheless, with index futures down this morning, the widespread enthusiasm for the attainment may prove to be the contrary indicator we have been anticipating. Full Article
The Economic Cycle Research Institute (ECRI) is an unbiased, independent forecasting service. According to their analysis, “the cyclical improvement in the economy is proceeding in a textbook sequence, from long leading indicators to short leading indicators to coincident indicators.” The analysts add, “there are now pronounced, pervasive and persistent upturns in a succession of leading indexes of economic revival.” Full Article
The current rally has been led by tech, basic materials and the financials. The QQQQ is looking a bit over-extended, however, as it approaches our $41-$42 target zone. Meanwhile, many of the leading financials have been trading sideways for 3 months. If the rally extends into August, and we think it will, then the banks may take over for what we expect to be the final leg up to Dow 10k. Full Article
Despite the recent sideways action in the major indices, the Dow is on pace to record its best July in 20 years. That may be a surprise to some, but in the historical context of bear market rallies, the major U.S. indices are behaving normally. Bear market rallies are known to be extraordinarily volatile. Take Japan, for instance. After making a new secular bear market low in March 2003 that was 80% below its 1990 peak, the Japanese Nikkei surged 240% through July 2007. Was that the start of a new bull market for Japan? Hardly. Over the next 19 months it then plunged 62% and undercut the 2003 level, setting a new secular bear market low. Today, the Nikkei remains about 75% below its 1990 top. Full Article
On Tuesday the Dow dropped more than 100 points intraday, but managed to crawl back toward break-even by the closing bell. The index closed down 12 points, only its 5th negative day this month.
Markets correct in time and price and the proportion varies. The current sideways action will serve the purpose, which is to provide an incentive for over-anxious holders (the so-called ‘weak hands’) to relinquish ownership of their shares. Once the tenuous fruit is shaken from the tree, the market will push higher. Full Article
The Dow rose 15 points on Monday, which is mildly impressive considering the overbought condition of the market. Modest but consistent moves higher on low volume occur during particularly bullish phases due to a lack of sellers. In times past, it was not unusual to see this type of behavior in November-December. Such Teflon rallies can last quite a bit longer than you might think. Full Article
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