Monday, November 5, 2012

Sector Detector: Strong Earnings Balance Global Worries

Have you noticed that there hasn’t been much new to say about the stock market and its drivers lately? Bears are weary from calling tops that don’t follow through, and bulls are hesitant to inject more cash until they have a more inspiring catalyst. So, we’re pretty much left to wonder whether the overworked mantra “Sell in May and go away” will be a self-fulfilling prophecy … or a contrarian catalyst for the bulls to get busy again.

The Dow, Nasdaq, and S&P 500 are all holding above round-number support levels at 13,000, 3,000, and 1400, respectively. On Tuesday, the Dow hit its highest levels since December 2007, following a strong ISM Manufacturing Index and strength in China’s manufacturing sector, but it petered out before the day’s end. Riskier small caps actually finished in the red as investors were worried about maintaining the “risk-on” trade. Then Wednesday’s ADP disappointed, but the riskier Nasdaq, mid caps, and small caps were the leaders while large caps languished. Financial and Energy led on Tuesday, but lagged badly on Wednesday.

Yes, there’s a lot of confusion during this period of technical consolidation, so investors are grasping for any sort of sign, omen, or directional catalyst. Now they await Friday’s Government Employment Situation report. Bulls are hoping for a green light to renew the surge…or at least a reason to continue holding the line until the next catalyst.

Speaking of holding the line, the SPY is still getting reliable support at the convergence of its 50-day simple moving average and the uptrend line shown on the chart. SPY closed Wednesday at 140.33. RSI, MACD, and Slow Stochastic are showing higher lows and bullish divergences.

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