A combination of better than expected home sales data and lower oil prices overshadowed the weakest consumer confidence in 16 years, allowing the market to find its footing and end Tuesday’s session with strong gains. Again, I assert that it’s not a rise in crude oil that may eventually derail this market – it’s the price of gold. Thus, when Gold lost over 2% today as the dollar gained ground against most major currencies, it pushed equities higher. But unlike oil, gold did not any lose ground when the equity market was open – it lost 2% in premarket trading. If the price of gold rallies again before it hits the $850 level, it will start to form a series of higher lows and higher highs. This will not be bullish for equities.
The NASDAQ continues to lead most rallies, and it’s the same handful of technology stocks that must be owned. AAPL, RIMM, GOOG, INTC – they bounced right off their 30 day moving averages. I have become more cautious in my intermediate term outlook on the market (1-4 months), but these stocks should continue to outperform even if the DOW and S&P 500 begin to decline. But if/when we see a name like APPL start to trade lower, it will mean that almost nothing can be owned. Just look back to January of this year. APPL went from a $200 stock to $130 in three weeks. This just happens coincide with the worst monthly performance of the S&P 500 in many years.
Most commodity names underperformed today, but we aren’t seeing the panic selling that disrupted the trends of the OIH, XLB and XME in January or March of this year. In the long term, these are still groups to own. Steel and coal names are still trading stronger than most other groups.
In the financial arena, investors paid no attention to a 6% drop in UBS on huge volume. LEH – the one finance stock you should monitor right now – jumped off the $35 level, brief support in late March after the stock’s crushing blow from the BSC fallout. Tens of thousands of June out of the money puts traded hands again today. Further, the $17.50 and $20 strike puts gained value as the stock added over 3% today. You should not go anywhere near this group.
Outside of price, I rarely use other parameters to influence my market sentiment. The one exception is volume. When the market was thrashed on May 21, trading volume was the highest since the major indices bottomed in mid March. For reference, the SPY traded over 250 million shares that day; today it traded 175 million. The QQQQ nearly reached 200 million shares on the 21st; today the number was 123 million and change. The market is still trending higher, but cracks are starting to emerge. Position yourselves accordingly.
