To start May, stocks faded, keeping in line with the market axiom to sell in the Emerald month. As June rolls in with warmth, the equity markets remain cold, mostly as a result of the EU debt crisis mixed in with a little US economic worry.
Then, seemingly out of nowhere, there’s a breakthrough, the Euro is going to be saved. Greece gets their money, the stock markets rock and almost regain the highs set a couple of months back.
Sounds real familiar, right? The EU approved European banks dipping into bailout funds and the stock market responds with an amazing Friday. The gains trigger a number of buy signals on the index charts as the week’s close is a new high following May’s pivot low.
For the Dow and S&P, their 12-day moving averages bullishly crossed their respective 26-day averages. The NASDAQ is one, maybe two plus days away from completing the trifecta. If the Fourth of July week delivers gains with the fireworks, then the trio of indexes could experience the 12 and 26-days move beyond the key, 50-day moving averages. Usually, that’s a real strong buy signal.
Of course, the stock market never moves in a straight line up or down, so there will few red days mixed in just to keep investors on their toes; however, the technical analysis picture points to the indexes flirting with their highs; perhaps this week, maybe next.
When investors come back from fireworks, BBQ, and the beach, the second week of July brings the start of the second quarter earnings season. Last week, Nike Inc. (NKE) may have forewarned of bad things to come. The athletic wear giant missed earnings, they never, ever miss. In fact, Nike has only failed to top Wall Street’s consensus view once in the last four years, make that twice. Usually, the 'Just Do It' company lives up to their motto with profits, 15 of the last 16 quarters in plus territory.
Companies with international exposure are going to battle strong headwinds to live up to the Street’s expectation. Real economic problems in China and Western Europe could lead to slack demand, while the dollar’s rise makes it more expensive to do foreign business. Both issues weighed heavily in NKE’s bad quarterly checkup, odds are they won’t be alone.
Meanwhile, the economic news at home isn’t bright and cheery, either. Unemployment claims continue to stack up, regional manufacturing report after report is disappointing, and consumers aren’t shopping at the pace economists anticipated.
Shortly, there could be talk of a double-dip recession; especially with Taxmageddon on the not so distant horizon. And don’t forget about a nasty, election-year debate about the debt ceiling that could coincide with the election. It will get ugly.
Minus a few details, like Nike’s earnings, the election, and Taxmageddon, most of what’s written here happened in the spring and early summer of 2011, but man, does 2012 seem to following the script.
While the technicals could bring stocks back to the comfort zone near 2012 highs, ETF Stocks would be very cautious, even take some profit out of the rally should it continue. Just like last year, talk of recession is likely to heat up as economic news weakens, earnings are likely to slow big time, and Europe’s debt problem will not be solved with more debt – does that even make sense?
The market is a forward looking model with prices anywhere from six to nine months in advance. Shortly, Wall Street will start to factor in the debt ceiling, 2013’s array of huge tax hikes, and speculate on their impact on the economy.
That means, right around August, things could get dicey. That seems oddly familiar, too.