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A big week of earnings that saw corporate profits rising as 75% of the results topped expectations. From what we can see the gains are in the 10% range, much better than the 7.7% anticipated. Anticipation of the results as well as the results themselves rallied stocks higher in a nice July move that led to some breakouts on the major indices.
There are more earnings to come, but the market definitely has the gist of Q2 profits at this point. There is more key economic data out this week including the ISM, personal income and spending, factory orders, and the employment report. The market will need something else to drive it from here, and the economic outlook and earnings potential, as always, will drive stock prices.
So, that leaves the economy versus the Fed and oil prices with respect to stock prices. Thus far the economy is holding on quite well but the Fed is not going to stop. It is likely to keep raising as long as it can until something significant happens that makes it clear it should stop. That is always too late to stop, but that is the Fed’s way: raise rates at the first sign of a sustainable recovery but don’t stop raising until you see the slowdown. The combination of oil prices and Fed tightening rates as well as money supply is powerful. If the Fed continues the market will at some point freeze up. At that time it will start distributing and leaders will break down on strong volume.
The big question is the when. Whether caused by the Fed, energy prices, both, or something else entirely, it will happen. It always does because every rally eventually ends. For now the market is showing continued positive action as it rides the wave of the solid earnings in the summer rally. As long as it continues to show good price/volume action, leadership, rotation, and can hold the recent breakouts it is in good shape. Kind of like saying as long as the sun comes up it will be a sunny day. The point is the market has been showing solid action as it moves higher. Sure volume is low overall (it is summer after all), bullishness is high, and new highs have struggled to hold their gains even as the indices hit 4 year highs. That hardly sounds like a perfect situation, but we have said before that the market is hardly ever perfect, and if you wait for perfection you will miss all of the action.
Again, the market is showing no sign of trouble right now but it is on final approach to a typically troublesome time for stocks, i.e. late summer into September. Last year the market did its selling in July to August and then rallied when stocks are typically weak. On this run it looks as if NASDAQ has another 3 weeks or so of upside. That is a very general observation based on typical historical moves; as always the market will show us the signposts as to where it is going. As of Friday they are still indicating a healthy move underway. That keeps us looking for new positions in strong stocks to play that move because regardless of what we believe, the market ahs the final say. We will continue to look down the road a bit and watch for developing problems, but we need to invest according to what the market is showing us as opposed to what our intuition, our gut feelings, or the calendar suggests.
There are more earnings to come, but the market definitely has the gist of Q2 profits at this point. There is more key economic data out this week including the ISM, personal income and spending, factory orders, and the employment report. The market will need something else to drive it from here, and the economic outlook and earnings potential, as always, will drive stock prices.
So, that leaves the economy versus the Fed and oil prices with respect to stock prices. Thus far the economy is holding on quite well but the Fed is not going to stop. It is likely to keep raising as long as it can until something significant happens that makes it clear it should stop. That is always too late to stop, but that is the Fed’s way: raise rates at the first sign of a sustainable recovery but don’t stop raising until you see the slowdown. The combination of oil prices and Fed tightening rates as well as money supply is powerful. If the Fed continues the market will at some point freeze up. At that time it will start distributing and leaders will break down on strong volume.
The big question is the when. Whether caused by the Fed, energy prices, both, or something else entirely, it will happen. It always does because every rally eventually ends. For now the market is showing continued positive action as it rides the wave of the solid earnings in the summer rally. As long as it continues to show good price/volume action, leadership, rotation, and can hold the recent breakouts it is in good shape. Kind of like saying as long as the sun comes up it will be a sunny day. The point is the market has been showing solid action as it moves higher. Sure volume is low overall (it is summer after all), bullishness is high, and new highs have struggled to hold their gains even as the indices hit 4 year highs. That hardly sounds like a perfect situation, but we have said before that the market is hardly ever perfect, and if you wait for perfection you will miss all of the action.
Again, the market is showing no sign of trouble right now but it is on final approach to a typically troublesome time for stocks, i.e. late summer into September. Last year the market did its selling in July to August and then rallied when stocks are typically weak. On this run it looks as if NASDAQ has another 3 weeks or so of upside. That is a very general observation based on typical historical moves; as always the market will show us the signposts as to where it is going. As of Friday they are still indicating a healthy move underway. That keeps us looking for new positions in strong stocks to play that move because regardless of what we believe, the market ahs the final say. We will continue to look down the road a bit and watch for developing problems, but we need to invest according to what the market is showing us as opposed to what our intuition, our gut feelings, or the calendar suggests.
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