Friday, May 13, 2011
Mixed economic data throughout the week kept the markets bouncing around in a trading range with no clear direction. Compared to last Friday’s close, the S&P 500 ended down 2 points.
Expectations for an expanding economy remain widespread, but a continued slowdown has become a distinct possibility, which would limit any upside growth and certainly will impact equity prices. As to when and how much remains the big unknown.
Consumer prices rose 0.4% in April, which was in line with expectations after an increase of 0.5% in March. Excluding the volatile food and energy components, the core rate gained 0.2% and 0.1% respectively.
While the consumer sentiment unexpectedly rose to 71.4 in May, from 69.8 in April, higher food and energy costs seem to put a limit on discretionary spending. Absent any improvement in prices, this too will eventually affect the direction of equities.
Looking across the Atlantic, the Eurozone GDP grew by a better than expected 0.8% in the 1st quarter of 2011. However, concerns about Greece’s unsustainable debt level occupied front page news.
More meetings are scheduled to discuss additional options for Greece. To my way of thinking, it’s now just a matter of time that the heretofore avoided term “restructuring” (translation: partial forgiveness of debt) will have to become part of the vocabulary.
Our Trend Tracking Indexes (TTIs) meandered as well, but more weakness has become apparent in the international arena as the positions relative to the long-term trend lines show:
Domestic TTTI: +4.58% (last week +4.76%)
International TTI: +3.31% (last week +4.72%)
Next week, we’ll be facing an economic calendar that includes Housing Starts, Building Permits, Industrial Production, Initial Claims, Existing Homes Sales and Leading Indicators among others. Any positives might help the major indexes break out of the current sideways pattern.
Despite this week’s bounciness in the market, no trailing sell stops were triggered. Looking at the various holdings, my guess would be that the next one on the chopping block will be energy (VDE), which will definitely head further south should any economic reports showing a slowdown materialize.
I will update any sell stop issues concerning our holdings via a blog post. Stay tuned.
Have a great week.
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