STTG Market Recap June 5, 2014

Well we’ve had a pretty good run here of late predicting the action.  A few weeks ago we noted how the “growth/momentum” stocks had reversed so it was time to stop being super cautious.  Then late last week we said the market needed a rest and some days of consolidation would be good.  That happened in the first part of this week but as we said yesterday this consolidation period is a time to build positions up if you have a bullish view.  Also we said the NASDAQ had more headroom than the S&P 500.  So today we had the NASDAQ up 1.05% and S&P 500 up 0.65%.  Usually it is not quite so “easy” but pretty textbook reversal at this point.

As noted yesterday most expected the European Central Bank to make a major move today and they did:

The European Central Bank (ECB) took the unprecedented step Thursday by imposing a negative interest rate on banks for their deposits—in effect charging lenders to park money with it. The move was part of a series of measures to combat the euro zone’s growth-sapping disinflation and give a push to its stuttering economic recovery.

At its June monetary policy meeting, the ECB cut the rate on its deposit facility for banks from 0 percent to minus 0.10 percent—the first time a major global central bank has moved rates into negative territory. It also cut its main interest rate to from 0.25 percent to 0.15 percent, and cut the rate on its marginal lending facility by 35 basis points to 0.4 percent from 0.75 percent.  In addition, he said the ECB had undertaken “preparatory work” in order to conduct a form of U.S.Federal Reserve-style bond-buying by purchasing asset-backed securities (ABS) from banks.

One word of caution in the near term – the S&P is up 9 of 11 sessions and now has burst through the top end of this long term resistance area.  So it would be unusual to keep going from here.  However there is such a discrepancy between the 2 indexes because the NASDAQ fell so much during the correction while the S&P 500 did not we are in an unusual situation where the charts of the 2 are very different.  The NASDAQ continues to have a lot of headroom to continue advancing.

spx

nasdaq

Amazon.com (AMZN) rallied today teased a possible smartphone introduction.  Unlike most of the momentum growth stocks this one had not really reversed the past few weeks.

Amazon has scheduled a “launch event” for June 18 in Seattle, where it is expected to introduce its first smartphone. The online retailer remains coy about identifying its new product. It announced the event Wednesday through a tweet along with a YouTube video teaser that shows users reacting to something being held at lap level, but doesn’t show what’s in their hands. According to the tech website BGR, the expected phone employs several infrared sensors to track a user’s face in relation to the phone’s display, making images on the screen appear in 3-D.

amzn

Contrast that chart to something like TripAdvisor (TRIP) which reversed a downtrend 2 weeks ago and has been surging:

trip

In a different type of chart, we have defense company General Dynamics (GD) which held very firm during the 2 month correction and now is rallying nicely:

gd

While things look positive from this point of view, SentimenTrader.com has a different outlook per yesterday’s close:

Despite a modest rise in the S&P 500 over the past 3 days, and the fact that it is sitting at a 52-week high, implied volatility as measured by the VIX has risen more than 5%. That has happened four other times since the bull market began in 2009, each of them preceding 5% corrections. The dates were 4/23/10, 2/1/11, 2/28/12 and 12/31/13.

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Comments

  1. Dan Carroll says

    What do you think of “InvestmentHouse.com”?
    Thanks in advance,
    Dan
    P.S. I don’t work for them or am not affiliated with them in anyway other than receiving their news letter. I am just curious of your opinion because I value it!

  2. says

    The ECB was following the Fed’s lead in pushing savers into riskier assets. It has now taken the lead. This is short-term good news for growth / momentum stocks worldwide as investors shovel their savings into the market. Negative interest rates are long-term bad news because they distort the cost of capital for new projects.

  3. says

    Hey Dan, sorry for the delayed reply. Never seen this site before. Looks like they are getting next to zero traffic. I would tread carefully, especially if they are offering premium paid services.

    Hey Anthony, I agree regarding negative interest rates being bad long term. Definitely trying to push change with the move. Very curious to see where this goes from here.