Courtesy of Scott Martindale, Senior Managing Director, Sabrient
A return of some bullish sentiment has provided an encouraging bounce this week after finding some leadership from Basic Materials, Industrial, Energy, and Consumer Services, as predicted by last week’s Bull Scores in Sabrient’s SectorCast rankings. It might only be fleeting, though. Today’s partial retracement could be signifying either an end to an oversold bounce or a simple pause to consolidate some hard-fought gains after four consecutive up days.
Although the dollar was up only fractionally today, its late-day strength correlated with the late-day demise in stocks. Still, dollar-sensitive Energy and Materials held up the best. Last week I pointed out that big cap Technology names have not been providing the needed leadership that the bulls have come to expect. But this week, there was a glimmer of strength from the sector on Tuesday. Let’s see if there is any follow through on the horizon.
Many are blaming Fed Chairman Bernanke’s reduced optimism on the U.S. economy as the reason for the late selloff. Nevertheless, the global economy is strong, with some countries like China actually trying to rein in growth, and most of the companies in the S&P 500 earn much of their profits overseas in the stronger local currencies. So, aggregate earnings among the S&P 500 firms are now at a record high – with no reduction expected.
Last Tuesday was very promising, as stocks had their strongest day in almost two months. But then Wednesday gave it all back, plus some. However, all was not lost as the market slowly crawled back with four successive positive days, culminating in yesterday’s (Tuesday) very bullish showing. Today’s (Wednesday) retracement was not nearly as scary as last Wednesday’s false reversal, and I see several signs of bullish divergences that are quite encouraging.
Since the beginning of the month, the Dow has lost and recaptured the 12,000 level, and the Russell 2000 has lost and recaptured the 800 level (although it was clinging for dear life at the close today). However, the S&P 500 lost but has not quite recaptured 1300, and today’s mid-day bullish action was rebuffed at 1300. The bulls might take another run at it soon, though.
Let’s look at the SPY chart. The 200-day moving average providing a nice bounce point, and history shows that after riding along the lower Bollinger Band, price tends to make…
