The Fred Report - Mid Week Update February 8, 2012

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The FRED Report – Financial Research, Education & Data

Mid Week Update

Volume 4, Issue 12

February 8, 2012

Download PDF Version here

Update of Market View

The stock market continues to advance towards the 137 area on SPY, the next resistance. Key numbers on SPY are a close above 136.43 (the previous high close for SPY), and then the high at 137.18. The broader indexes such as NYA, IWM are lagging a bit, and so are the Transports – a concern. We think this is because European money is coming into the U.S. stock market. One interesting thing we note is that the Dow Industrials have made new recovery highs, and Small-cap is making new all-time highs. We think this is because two key events are happening now: The first is the U.S. economy is improving, and the second is that European money buys US Dow Industrials-type names. We show charts of the Dow Industrials and Transports below – we like the market but would feel much better if the transports were leading the industrials.
The European fears have been pernicious but we are seeing some rallies in these markets, such that the markets are suggesting these concerns are overblown. The FXE and FXF still look like a potential Head and Shoulders bottoming formations. If this is the case, a strong rally, both in the currencies and in the European market indexes, should result. 

 

We continue to have questions about Emerging Markets, so we show weekly charts below, both relative to the SPY. A quick look at these charts shows that IJR performed better on the decline into the October low, as well as during the ensuing rally. We are not saying that emerging markets won’t rally – but we ARE saying that U.S. small cap has been outperforming, and should continue to outperform, although EEM may be “cheaper”. Indeed – sometimes cheap is for the birds!