We probed higher this week especially following the FOMC meeting on Tuesday. This meeting happens every 6 weeks and it a great source of volatility. The fed clearly has upward interest in mind and that is consistent with the continued bullish reports we have seen this week. I still urge caution to the bulls however.
The Russell futures, which we discussed last week also probed higher and are trying to test the Feb 17 high of 829.20 on my continuous contract chart. The S&P is at new highs (as previously discussed).
Another interesting fact involving small cap stocks is the fact they have substantially outperformed the rest of the market over many decades. This is probably true because it is easier to double a penny than $100, so micro-caps have faster growth (see square root theory in last week's post) . So, when the market moves, it is a bit of a slingshot effect for small firms positioned intelligently in the market. This is true to a factor of better than 9:1 over the years, so it is worth keeping an eye on.
So it looks like the monthly projection I have mentioned of 1429 on the S&P futures is in play, though we probably wont go straight there.
We have a whole slew of reports coming out next week that could keep some upward pressure going on the market. So, unless we see something bad coming out, "buying the dips," might not be a bad idea.
Speaking of buying the dips. That reminds me of a mechanical system I created back in the mid to late 90s and into 2000 that just plain made a fortune. This system analyzed the breadth of the market and correlated it with market movements. If the market dipped and the breadth was expanding (accumulation on down days), the system would buy. If the market was up and under distribution, the system would sell. That system had winner after winner for years. Anyway this 3-4 day dip we had on the 6th sure looked a lot like those old days. But the market was driven by innovation in those days ie. internet, computers etc.and we weren't a war based economy.
Speaking of innovation. THE innovators of the day make cell phones and tablets. It was put out by S&P yesterday that Apple is now bigger than all other retailers combined. A few days sooner, it was said by OMG facts that Apple was more valuable than the entire US interstate highway system. Now I don't know about you, but I asked my 17 year old, what was more important, the US interstate highway system or an iPod, and you know what his answer was (this is not a question:-). Truth is stranger than fiction.
There is a saying in Chinese that says, "May you live in interesting times." (It is meant to be an insult).
Ok, back to next week. I am thinking we might have a bit of downside next week and then things will pick back up again mid week and head higher. I see a virgin point of control on my Emini S&P futures chart at 1377. If we get there however, there is a gap just below it at 1367. I say this knowing very well my lower projections were all missed last week. So I will give myself an out by saying we will need a catalyst to get down there. Something pretty bad. Hmmm... let's take a look at the reports and see if anything might fit.
But first, you know I mentioned last week how "good" analysts hedge their bets and understate the record. Well this is just what we have going on with all the good/bullish reports lately. It may not be that the numbers are so good, but they are beating estimates.
So, to get some downside we will need to have something come out substantially below estimates (or a political or international issue).
We have a grand whopping 5 FOMC speaking engagements next week. These guys are long, so we know we'd need to overcome them to head south. Housing starts and building permits could do it, on Tuesday before the open, so watch that one and, existing home sales on Wednesday followed by unemployment claims on Thursday and new home sales on Friday.
Speaking of housing. I heard an interesting stat this week. It basically said if the underwater mortgages were forgiven and people were allowed to Refinance, the economy would take off like a rocket. The argument was it would have the effect of making the banks so much more profitable, that it would offset the losses of the write-downs. Approximately 12% of all homeowners are underwater/stuck in their homes. This is dead money really.
These homeowners, if they want to refi, might have to come up with 40 or more percent of their home value to get a lower house payment and some new discretionary income with which they could buy a new iPod. Anyway, I don't know if this analysis is true, but it does make a point that getting it over with might induce more growth than the stranglehold we currently have on our economy.
If you know me, you know I don't typically don't subscribe to give-outs of any kind, but I also believe in common sense, after all, some of these people are trapped because they were responsible citizens and did not take loans they knew they could never pay back by refinancing every month in the "housing boom."
Enough said on that. Keep an eye on the housing numbers next week, it will likely be the most important reports of the week.
In case you don't know a couple sources on the reports are Econoday which is put out by Bloomberg at: http://bloomberg.econoday.com/byweek.asp?cust=bloomberg
Another good one is Forex Factory: http://www.forexfactory.com/calendar.php?c=2&week=1332028800&do=displayweek&month=3&year=2012
I used to think as a technical trader that not looking at reports was wise, but in today's news / government induced economy, it is critical. Learning to know what is what on reports is probably well worth your while.
That's all for now...
Have a great week!