Are stocks Weebles or a LifeCall grandma? Because they ended last week wobbling. Based on the index charts, they better not fall down, or they might not get up for a while.
Last week, the S&P 500 and Dow went sideways while the NASDAQ added 1%. Two weeks ago, Top Equity News cautioned that stocks could churn for a while. Last week, TEN saw signs that some profit-taking is overdue.
Top Equity still feels the odds favor a correction – sooner or later – based on our analysis of charts, news and economic revisions.
On Friday, Wall Street was hoping for 3.1% GDP growth in the fourth quarter. Instead, the street got 2.8%; most of which came from rising inventories. As a result, economists feel bloated inventory levels will slow down the economy and are reducing their Q1 forecasts.
Adding to our concerns, S&P 500 companies are posting positive earnings surprises at the slowest pace in years. EPS are heading south because profit margins are shrinking; lower earnings eventually lead to lower stock prices.
While the footing for stocks to continue climbing is shaky, the Federal Reserve’s and European Central Bank’s (ECB) easy money policies are keeping bulls on solid ground. Last Wednesday, Chairman Ben announced ZIRP (zero interest rate policy) will continue for at least 2 more years and QE3 stands at the ready.
Easy money chasing stocks left uneven economic/earnings results and European debt woes behind; although, the PIIGS could start squealing again, as soon as today.
However, equities might not be at odds with the global economy and profits for much longer. The Dow, S&P 500, and NASDAQ are pressed against technical resistance. From here, stocks will either breakout or breakdown.
The Dow and S&P 500 are dropping hints on which direction they are likely to choose with bearish MACD cross-unders. The semi-reliable signal has been hard on investors in the past 12 months. Every time it has flashed on the screen, the indexes rolled over within three weeks.
It’s up to the NASDAQ to flex its muscles and pull the Dow and S&P out of the quicksand before the duo pulls the NASDAQ in too.
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