MLR - Premarket Pulse August 8, 2012
Markets continued higher, this time on higher volume, in Tuesday's trade. Despite the higher volume, leading stocks still did not put in impressive performances as most rose on lower volume, or declined as in the case of leading stock Apple (AAPL). A few stocks closed in the lower half of their range after attempting minor breakouts including Texas Capital Bancshares (TCBI), TransDigm Group (TDG), and Michael Kors (KORS), and after Tuesday's close, former leader Priceline.com (PCLN) gapped down on weak guidance going forward after reporting earnings, marking another former big-stock market leader falling by the way side.
Markets can rise with little leadership as we saw in January through March of this year from trickles of quantitative easing (QE). On the other hand, if one draws trendlines along the tops and bottoms of the S&P 500, one can see it is near the upper limit of its rising band which serves as a resistance area. While summer doldrums are here and with the temporary absence of major negative economic news, the markets still do face ongoing negatives with a lower consumption in the UK and in Europe and lower production out of China.
The market's rally is mostly seen as the "Draghi Bumblebee" rally, and U.S. stocks are up about 5% since but the reality is that a bailout is dependent on Spain adhering to austerity measures which becomes another matter altogether. While countries like Spain and Italy readily say "yes" to bailout lip-service by ECB officials like Mario Draghi, they tend to say "no" to the required austerity measure as a condition of receiving a bailout. This is where the issue gets sticky, and we would not be surprised to see the current rally fail as the "buzz" of Draghi's comments a couple of weeks ago begins to fade and reality sets in once again.
With lack of leadership and no discernible trend, the markets remain difficult to play on a stock-by-stock and ETF basis, and we remain in a cautious posture here.
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