The markets should continue higher on momentum and improving technicals. Last Thursday, the NASDAQ charged higher on healthy volume. The move north put an end to a streak of sideways days with lackluster volume. It was the very definition of the summer doldrums.
With the late week advance, the NASDAQ made up lost ground and joined the Dow and S&P within lasso distance of their 2012 highs. For ETF Stocks, it is important that the NASDAQ leads the way.
Many of the market-leading companies, like Google Inc. (GOOG), Apple Inc. (AAPL), and Amazon Inc. (AMZN) trade on the exchange and are a good barometer for the health of the market. Not coincidentally, as the indexes are on the cusp on new highs, the three names mentioned are flirting with or making 52-week highs.
With powerhouse names racing to new highs, it’s no surprise that large-cap growth stocks are the Street’s style of choice, according to out sector analysis. Investors who want to take advantage of this trend might consider exchange traded funds like PowerShares QQQ (QQQ), iShares S&P 500 Growth Index (IVW) or Vanguard Growth ETF (VUG).
While all of ETF Stock’s market-timing models are bullish for the first time in four months, gains could come in a sputtering or slow but steady fashion. The major indexes are trading near the upper boundaries of their normal trading range when compared to their 20-day moving averages.
There is a little room for the elastic to stretch higher and away for the key 20-day line. ETF Stocks believes the NASDAQ could start to run into uncertainty near 3100, the Dow at 13,420, and the S&P could struggle to top 1,440.
As the indexes approach these targets, investors might start to think about lessening the load. According to the calendar and history, September has been the worst month to be in stocks. October has been no treat, either. A few major crashes come to mind, not that we think anything like that is going to happen this year.
Nonetheless, it seems to us that Wall Street has factored QE3 from Ben Bernanke and the Federal Reserve when they meet again on September 11th and 12th. Recently, a few regional fed presidents have said quite loudly and publicly that the central bank has done all it can do and that more stimulus would do more harm than good. We don’t see the hawks changing their minds in the next three weeks.
If QE3 is built into prices and Ben says no (!), stocks are likely to suffer. Additionally, a negative from the Fed means the ball would bounce into the federal government’s court to take fiscal action. And you know that ain’t gonna happen two months before the presidential election.
Finally, stocks have been marching higher while analysts are cutting their earnings’ forecasts for Q3 and Q4. Typically, earnings revisions are one of the more reliable predictors of which way equities are headed eventually.
Before we get there, the indexes are poised to go higher. Investors better enjoy the ride before the turbulence comes.