Courtesy of Sabrient Systems and Gradient Analytics
Stocks have been on a one-way train all month long. Now, as we approach Groundhog Day, the market appears to be having its own version of it as the Dow faces 14,000 and the S&P 500 struggles at 1500. As investors peer out above these levels, will they collectively see their shadow and retreat to safety for the next six weeks? Or will they bravely march forward into the clear blue skies to challenge the all-time highs from 2007?
The market may have foreshadowed its near-term intentions on Tuesday when, despite rising overall on the day, it was led by defensive sectors like Healthcare, Consumer Goods, and Utilities.
Seemingly overlooked during this period of falling bonds and rising stocks is the strength in crude oil. Light sweet crude is nearing the $100 mark for the first time since last May. Unless there is some direct threat to global supplies, this is usually a sign of rising demand and the expectation of a stronger global economy. In fact, supply forecasts are improving with increased domestic production, which should be keeping a lid on price increases. Nevertheless, oil stocks have been strong—particularly the refining & marketing firms, as demonstrated by Tuesday’s earnings report from Valero (VLO). Sabrient favorites Marathon Petroleum (MPC), HollyFrontier (HFC), and Tesoro (TSO) are also on a roll.
Although Wednesday morning brought news that the fourth quarter GDP actually contracted by 0.1% (rather than rise by 1.0% as most expected), a huge 22% decline in government Defense Spending was a primary culprit, while the important Personal Consumption component rose a healthy 2.2%. Also, the FOMC policy statement suggested little change in economic conditions and no change in the Fed’s policies.
The S&P 500 SPDR Trust (SPY) closed Wednesday at 150.07 as it struggles to break away from this 150 level. Last-minute buying kept it above 150, but just barely. The wide Bollinger Bands are starting to pinch back together. The 50-day simple moving average has crossed up bullishly through the 100-day SMA. However, oscillators RSI, MACD, and Slow Stochastic are still extremely overbought as bulls have refused to give up much ground…yet.
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