Courtesy of Scott Martindale, Sabrient Systems and Gradient Analytics
U.S. stocks are raring to rally. Earnings reports have been quite good. Consumers are spending despite stubbornly high unemployment. Interest rates are at rock bottom, which is good for borrowing and also makes stock yields relatively attractive. So what’s the problem Oh, just the usual–fear of a European debt meltdown triggering a global recession.
The fear is that the freeloaders like Greece and Italy may bring down the kingpins like Germany and France. But big-time investors like Warren Buffett remain undaunted. In fact, during 3Q11, Berkshire Hathaway (BRK.A) made its largest quarterly allocation of cash to equities since the mid-90s, including a 5.5% stake in IBM Corp (IBM)–a rare investment in Technology for the “Sage of Omaha” who normally sticks with non-cyclicals like Consumer Staples and Financials.
Notably, while the Financials and Materials sectors have been hit hardest this week, Technology and Consumer Staples have held up the best. If you look at the Sabrient SectorCast ETF rankings show that Financials and Materials sector iShares (IYF and IYM) indeed have been the leaders on strong market days and the laggards on weak market days.
Despite good overall earnings reports this season, suspect earnings quality nevertheless has been the downfall of a number of stocks. Forensic accounting firm and recent Sabrient acquisition Gradient Analytics (http://www.EarningsQuality.com) saw a number stocks that it had red-flagged fall after their earnings reports, including Ritchie Bros (RBA), International Flavors & Fragrances (IFF), Medicis Pharma (MRX), Green Mountain Coffee Roasters (GMCR), and Netflix (NFLX), just to name a few.
David Trainer of New Constructs, a regular contributor to the Sabrient blog, has his own take on forensic accounting and the current environment, as described in his recent post: http://www.sabrient.com/blog/p=5490#more-5490.
The SPY closed Wednesday at 124.08. The market basically has been treading water as it reacts daily to the latest prognostications for Europe. Price is forming a symmetrical triangle (like a coiled spring) from which it will try to either breakout bullishly or breakdown bearishly. After the recent bullish breakout from an 11-week trading range (between 112 and 122), I think this is possibly a pennant formation, which is a continuation pattern of the new bullish trend. However, it is hard to read, especially since it is so news-driven these days.
The flat 200-day simple moving average is…
