I feel good this Monday morning, which is a fine way to start this week, another wild week in the market, no doubt. Why would this week be different than last, or any week before that in the last eight or so? Sure, Putin has actually pulled his troops from Ukraine’s eastern border, but China is still an issue for the breathless media.
- When China blows, there won’t be an effective stimulus policy from the U.S., Europe, or Japan, to counter such a shock. It will make the U.S. sub-prime crisis look like a Sunday afternoon picnic.
Granted, the above is opinion. Although not elegantly stated and a bit overblown, it does represent a viewpoint in the market – China’s economy is headed for a crash. As well, even though earnings have come in above expectations, the breathless media is still pushing the mixed US economic data theme, which is likely to keep investors on the fence and traders on the prowl.
- Fear has been part of the equation as well. Investors have shied away from hyper-growth companies since February as biotechnology and Internet stocks slumped. That drove flows away from the iShares Russell 2000 exchange-traded fund (IWM.P), which in turn pressured the underlying stocks.
Yes, the market immediately turned down this morning, so fear is still playing, but that fear might be played out in the small-cap world. It just might be the overvalued state and the correction to fix that is nearing an end, at least according to the state of the ETF that represents the small-cap world.
- Weekly inflows into the IWM ETF in the week ended Wednesday were the highest in dollar terms in four years, according to Lipper data.
My barometer also says the tide is turning in the most recent setback for the market. My small-cap trades are pushing into the green this morning, and that is a continuation of the turn up that began last week. If nothing else, the small-cap stocks and the so-called mo-mo stocks might have found the bottom.
I don’t know if the big three indices (DIJA, S&P 500, NASDAQ) will stabilize, as the small-cap stocks seem to have done, but they might be on the verge. Despite the big down days last week, the market finished last week in the week in the black, which means it is still trading above its floor, even if it cannot hold above its ceiling. The point is it keeps trying to get there and stay.
- Japanese machinery orders, a leading indicator of capital expenditure, have grown at the fastest rate since 1996, surging 19.1% on month in March after slumping 4.6% in February and slaying expectations for a rise of 6%. Companies also expect bookings to grow 0.4% on quarter in Q2.
The above capital expenditure number is probably an anomaly, but the underlying message is real – Japan is slowly finding its way back as a global economic power. To paraphrase and flip a famous Japanese saying after the bombing of Pearl Harbor, a sleeping giant is waking up.
- AT&T plans to pay $48.5 billion to buy DirecTV, in the latest sign that the wireless industry and the U.S. television market are set to converge as customers consume more video on their mobile devices.
And so it goes … Japan wakes up, China blows up, earnings come in better than expected, Russia pulls back, the US economy keeps on trucking, small caps stop sliding, and the mergers and acquisitions get bigger and bigger as the corporate money keeps moving around. Should be an interesting week, yes?
Trade in the day; invest in your life …
