The market continues to move up on lighter volume as distribution days have built up over the past three weeks, a pattern that on its face cannot be viewed as constructive, but in the Age of QE these sorts of upside "melt-ups" are not uncommon. The market remains trapped in a sideways range over the past two weeks as the S&P 500 flirts with all-time highs. Futures are down this morning as banks re-open in Cyprus and Italy moves into focus again as another one of Europe's insolvent sovereigns. The market shows some signs of fatigue as yesterday's rally was mostly led by rebound action in broken-down leaders such as the mortgage-servicing stocks, for example. Small-cap stocks, which have been the stellar performers in this rally so far this year, lagged, another indication that the rally may be losing steam and the market is headed for a perhaps necessary pullback and retrenchment. Investors should focus on their stocks and associated stop-out levels.
Netflix (NFLX) flashed a pocket pivot buy point yesterday, but as a weaker turnaround situation the stock carries more risk. Last time NFLX tried to pocket pivot its way higher, two weeks ago, the move promptly fizzled and the stock headed back down towards the lows of its now five-week consolidation. Pre-open NFLX is moving back below the 190 price level.
The debate over just how strong the U.S. economy is continues. Economic reports were mixed yesterday with February durable goods orders beating forecasts and a key home price index showing a good advance for January, roughly matching estimates, but February new-home sales rose less than expected, and a consumer confidence gauge fell more than expected. These mixed economic reports continue to show a struggling economy overall, begging the question whether the US has already fallen into recession if using shadowstats.com values which show that GDP growth is in fact negative while the actual government spending deficit, if accounted for on an accrual basis, is closer to $5 trillion. For the U.S. to be in recession would make sense since Europe and the UK have been in recession and these major economic powers tend to move in unison.
While the market remains mired in a sideways range it remains to be seen on which side of the fence the action eventually resolves itself, thus investors should be alert to developments in real-time and react accordingly.