Is the current bullishness in the market an "all aboard" signal for active investors and long term, position traders?
Over the past few weeks I've been trying to assess the market's potential for higher levels--starting perhaps with my Weekly Outlook piece, "Is the S&P 500 Serving Turtle Soup?". In that article, we looked at the S&P 500 through the lens of one of PowerRatings.net founder and CEO Larry Connors' best-known trading set-ups, Turtle Soup.
You can go back to that Weekly Outlook article from late March for more specific details on the Turtle Soup setup. What is important is that this set-up is used by traders to detect reversals in trends. In this case, the Turtle Soup set up was used to determine the likelihood that the market would rally after it failed to follow though on the selling that struck in mid-March.
The Turtle Soup setup was not perfect. But there were enough similarities for us not to be surprised to see the S&P 500, for example, pushing toward the 1,400 level as I write this afternoon.
So where do we go from here? One unfortunate fact of the matter is that the major market indices remain below their 200-day moving averages. This puts a constraint on the sort of opportunities that short term traders can take advantage of. But for the active investor or position trader, it means simply that it is all the more vital to stick with the sort of high Long Term PowerRatings stocks that we feature every day at PowerRatings.net. These are the stocks with the historic edges we have uncovered through our research involving thousands and thousands of simulated stock trades from 1995 to 2007.
I addressed this to some degree last week in my Weekly Outlook article "What Are PowerRatings Saying About the Economy?".
Until the markets rally above the 200-day moving average--and stay there--stocks will continue to be under pressure. While this happens, some of the more significant information will come not so much from the markets, but from the way the markets respond to news from individual stocks. Earlier in the week, good but unspectacular news from Intel was very well received. Later in the week, even better news from Google was treated as an occasion for the markets to move much higher as we headed toward options expiration on Friday.
When a market shrugs off bad news and moves higher, we know we are seeing a market that is likely putting in a bottom of some significance. When that market hears good news and actually runs with it--as the market has been doing this week--then the likelihood that stocks will regain a bias to the upside increases all the more.
The short term stock trader in me remains wary as the market rallies toward potential resistance in the form of its 200-day moving average. There will be plenty of traders more than ready to short the strength we have seen in recent days as we near those levels. That offensive on the part of the short sellers may be as instructive as the post-Intel and post-Google rallies in terms of letting us know if we are being lifted up only to be let down, or if higher prices for stocks are indeed ahead in the second half of 2008.
Stocks in the News
This week's stocks in the news includes more bad news from the financial sector, and some surprisingly good news about Google's ability to withstand slower growth.
An earnings miss from Pfizer (PFE | Quote | Chart | News | PowerRating) shocked investors who had been increasingly seeking out the stock as a potential recession-beater. Pfizer missed both top and bottom line numbers.
If you are going to miss estimates, then you might as well miss big--which is just what Washington Mutual (WM | Quote | Chart | News | PowerRating) did this week in reporting earnings that were some 35 cents below consensus expecations.
Another quarterly report from the big banks, another admission of multi-billion dollar write-offs ... This week it is Citigroup (C | Quote | Chart | News | PowerRating) airing its dirty debt laundry as the company reported that an increasing number of credit card customers were falling behind in their debt payments.
While stocks like Pfizer stumbled, other recession-beater stocks like Johnson & Johnson (JNJ | Quote | Chart | News | PowerRating) were impressing investors this week with strong earnings. Johnson & Johnson, for its part, beat analyst expectations this week by six cents.
Intel (INTC | Quote | Chart | News | PowerRating) beat analyst estimates for the first quarter this week and provided guidance for the second quarter that was in-line with expectations. Shares of Intel were higher on the news.
Profits for Google (GOOG | Quote | Chart | News | PowerRating) were up 30%, the company announced yesterday in an earnings announcement that blew analyst estimates--and the sniping of critics--out of the water.
Strong demand outside of North America led to Caterpillar (CAT | Quote | Chart | News | PowerRating)'s announcement this week of a strong 13% quarterly gain in net income.
What To Look For Next Week
Monday: None
Tuesday: Bank of Canada Announcement / Same Store, Retail Sales
Wednesday: Existing Home Sales
Thursday: Jobless Claims / Durable Goods
Friday: Consumer Sentiment
Best Performing Stocks (PR 8-10) of the Last Five Days
Here are some of the best performing, high Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 9 or 10.
NAVTEQ Corporation (NVT | Quote | Chart | News | PowerRating). Long Term PowerRatings 10
Vector Group Ltd. (VGR | Quote | Chart | News | PowerRating). Long Term PowerRatings 9
General Mills (GIS | Quote | Chart | News | PowerRating). Long Term PowerRatings 9
Great Plains Energy (GXP | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Puget Sound Energy (PSD | Quote | Chart | News | PowerRating). Long Term PowerRating 9
Worst Performing Stocks (PR 1-3) of the Last Five Days
Here are some of the worst performing, low Long Term PowerRatings stocks of the past five days. This week, all of the listed stocks have PowerRatings of 2.
Crocs, Inc. (CROX | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
E Trade Financial Group (ETFC | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
Guess Inc. (GES | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
Jetblue Airways (JBLU | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
ProShares UltraShort Real Estate (SRS | Quote | Chart | News | PowerRating). Long Term PowerRatings 2
David Penn is Senior Editor at PowerRatings.net.
