While financial warning flags should be unfurled, there is no reason yet for them to be attached to the pole, even at half-mast. Here is an update on the market-based indicators I follow:
1) Exchange-traded funds (ETFs) representing the three major stock indexes — SPDR S&P 500 (SPY), SPDR Dow Jones Industrial Average (DIA) and PowerShares QQQ (QQQ) — have rallied from weakness mid-April.
Volume, breadth and the number of new highs have been encouraging, though not as solid as in the recent past. This is not surprising because the most recent bull market surge is almost six months old. Nonetheless, the recent solid performance of the technology stocks, led by Intel, is most encouraging.
2) The iShares Dow Jones Transportation Average (IYT) ETF has been in a world of its own since last fall and continues to march to the beat of a different drummer. Its recent softness is not yet a secondary reaction in the Dow Theory sense. In plain English, it can continue lower for a while before it becomes a matter of concern.
3) I am surprised by the strength in Treasury bonds and Treasury Inflation-Protected Securities, given the collapse in gold prices and other commodities. While some suggest this presages an imminent recession, it has not shown up in any other indicators like employment or jobless claims. I'll have to punt on what strong Treasury bonds might mean!
4) The collapse in the price of gold is incredibly bullish for other markets and the economy. Time for scared money to come out of the financial closet and generate investment, wealth and jobs. After months of waiting, the SPDR Gold Shares (GLD) ETF finally fell below support around $150, amidst huge volume. The recent rally should peter out as soon as the big April 15 gap is closed.
In short, steady as she goes. Let the rest of the earnings reports give us a meaningful idea about expectations for the next few quarters, and we can make adjustments to our holdings later this spring.
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