July 24, 2011
Weekly Market Outlook
By Keith Schneider
With all of the useless things the government has spent our money on, the one that tops the list is the time our treasury officials are spending preparing for a debt default. I have a quick solution that might prevent this from happening; one that will be easy to implement and simple in its clarity of purpose. Let’s start with the non-payment of salaries and health benefits to those congressional members who are voting to oppose meeting our prior obligations and raising the debt ceiling. After all, aren’t their salaries, pensions and health benefits contributing to the problem?
Also, just to be fully prepared for all contingencies should the plan above not work, large quantities of Preparation D (specially brewed to deal with the discomforts of an actual debt default) should be issued to every American and anyone holding US debt obligations.
Meanwhile, the markets are showing two schools of completely contradictory thought. Hard money/Austrian School of Economics followers pushed gold and the Swiss Frank to new to all-time highs this week betting on a US default and continued debasing of currencies by most Western governments. On the other side of the equation are those making the political bet that not raising the debt ceiling is political suicide for the Republicans, thus, making the call that the wall of debt worry is a huge buying opportunity. Blowout earnings on leading stocks such as AAPL and GOOG are bolstering those beliefs. Those students who follow earnings were also rewarded this week as the NASDQ 100 closed at its highest point since February 2001. So will this debt ceiling crisis be a Y2K type of scare or the real thing? It’s hard to see how both schools can be correct for extended periods of time.
SPY (S&P 500), DIA (Dow Jones), IWM (Russell 2000) and QQQ (NASDQ 100) Indexes
The market worked off its oversold market internals this week with a strong rally. The leading NASDQ stocks led and closed at the highs for the year. Last week we highlighted the clear trading range traced by this index and how it was best positioned to breakout to new highs as it was sitting higher in its channel than all of the other key indexes. We seemed to be poised to climb a wall of debt worry and a potential explosive rally is possible. Of course, in the event that we don’t reach a deal, a true meltdown is also in the cards. One caveat is that the leadership in QQQ needs to be confirmed by the other indexes and the distance from the new highs of DIA, SPY and especially the broader based IWM is worrisome. SPY, DIA, and IWM all had inside days on Friday and bears close attention. After compression comes expansion.
IWM (Russell 2000) this broad based index of mid-cap stocks has lagged NASDQ but is poised to move with an inside compression day. Potential inverse head and shoulders formation forming.
QQQ Needs to clear channel line on good volume
Market internals
VIX (SENTIMENT) This sentiment indicator went from nervous to back too bullish as the market staged an impressive rally with QQQ closing on 10 year highs. VIX is now trading below the 200 and 50 day moving averages and well in the middle of its trading band. Risk back on!
Sentiment is content with new highs for Nast
Mccllean Oscillator- This intermediate term breath finally touched a moderately oversold condition and then immediately reversed to a buy signal by the close last Tuesday. We are now in bull mode with more upside possible.
Adv/Decline and Up/Down Volume –Like clockwork, the advance /decline and up/down volume indicator were oversold last week indicating a rally was imminent. The market responded with a great week lifting the stock market as expected with more upside likely. Remember, these are shorter term 1- 2 weeks in nature and move quickly. The sell off on Monday finally pushed us to oversold and then immediately generated a buy the following day.
Accumulation/Distribution – The big players were buying this week as there were no distribution days registered. Instead, there several accumulation days in volume this week on the key US Equity Indexes. This indicator remains in Risk On mode... bullish
Gold – (YG Gold Futures) Gold once again hit new historic highs with all the vitriol on Capitol Hill over the debt ceiling and budget issues. The fact that Gold and the US Equity Markets are both hitting new highs under current circumstances is fascinating to watch. Of course the big difference is that Gold is at historic highs and Equites are not even close. The recent compression points to a large upcoming move.
Leading Stocks... to complete the picture, stocks like GOOG and AAPL each had blow out earnings-where the recovery is.
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