By ETF Stocks
The world’s equity markets started the week on a weak tone. From Asia to Europe to pre-market U.S. futures, it is all red. The only difference is the degree of hue with Asia being the deepest.
Once again, the Employment Situation Report acted as a rally killer. June 1st’s disappointing jobs numbers resulted in a bloodbath, too; however, the free fall lasted exactly one day as trader's algorithms built in bad headlines equals fed easing.
Will it be déjà vu all over again?
The Federal Reserve has July 31 and August 1 typed into Outlook’s scheduler for their next FOMC meeting. Surely, a recession reading from the ISM Manufacturing Survey and only 80,000 jobs should help Ben Bernanke leap into action to save the economy.
By the time the end of the month rolls around, Wall Street will be full-swing into earnings season. ETF Stocks believes the strong dollar will wreak havoc on companies that do a majority of their business overseas, and boost the bottom line for those with customers on home soil.
We also see the economic slowdown in China, the U.S., and EU debt sufferers crimping on profit’s style in Q2. ETF Stocks thinks the mix could lead to lukewarm, forward guidance during conference calls, and the future is where the pops and drops reside.
Shareholders in companies that meet or miss earnings, and forecast in line or lower than anticipated growth for the 3rd quarter, are likely to watch their stock lose a lot of value from bell to bell. Meanwhile, the companies the beat and guide higher could garner more positive attention than usual.
For now, the NASDAQ is in an upwardly moving channel with a clearly defined leading edge trend line. The bottom edge is a bit fuzzier. As long as the index stays above 2890, which is pretty close to the 50-day moving average, stocks should continue bouncing within the channel’s outer edges.
In all likelihood, second quarter profit checkups will drive investors to push beyond the upper or lower boundaries. Whichever occurs first, a breakout or breakdown occurs, will tip off the stock market’s next move.
It goes without saying, ETF Stock hopes Wall Street blows off the lid versus falling through the floor.
In our view, the market is likely to be choppy until earnings settle on a direction. Economic reports will likely continue to disappoint, and the closer we get to the election, the more paralyzed D.C. will become. Plus, 2012 still has the look of repeating 2011, as we wrote about last week.
ETF Stocks would advise proceeding with caution. Perhaps, investors could consider writing covered calls on some of the recent winners in the portfolio. If the NASDAQ falls below support at 2890ish, an inverse index ETF could act as a safety net and cushion the fall. On the flip side, a breakout above 3000 could signal all systems go.
Finally, if the economic news gets real bad and stocks tank, like last August’s waterfall, the more we would pay attention to gold and silver. A stock market shock and you can all but guarantee that the fed will QE3.