July 22, 2013
Weekly Market Outlook
By Keith Schneider
The S&P 500 closed on new highs Friday, just missing making new intraday highs. More importantly, the Russell 2000 continues to rip, clearly a big positive when small to mid-caps lead. Several NASDAQ-tech stocks like Google fell from grace putting in a reversal pattern in the QQQ which makes some of us scratch our heads as we go into this week even though most of the data points to more upside.
Additionally, the big drag of foreign equities is clearly abating as EWG, ( Germany) and other country funds are recovering smartly, making our call on July 10 to buy the German index on a phase change (now all the way back to a bullish phase) very timely. The overall prospects for a general improvement in economic conditions for Europe was reported by several appliance manufacturers including Electrolux. So sucking up additional equities with exposure to Europe should be a good strategy considering the still considerable divergence in the performance when compared to the US.
The big run-up in rates seems to have abated for the moment, which adds a bit more fuel to the bullish case for stocks as well. Equity inflows are at their highest levels in years, further adding additional energy. Whereas people were happily underinvested in stocks and could point to the fact that the key indexes had been below highs put in over decade ago, now are no longer able to makes those claims.
Meanwhile, the market has had a V bottom, which is sometimes vulnerable to deep corrections. Although the bigger picture signs are positive, we need to keep an eye on the short term technical patterns. Short term, we are holding a proverbial stick of dynamite and will have to let the market tell us if the fuse is lit and, how long it might be.
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