Friday, August 17, 2012

Improvement in Consumer Confidence

Similar to what we saw in PPI and CPI earlier this week, higher oil and gasoline prices have yet to impact not only producers but also the consumers.  The University of Michigan consumer sentiment survey print of 73.6 was higher than the 72.2 consensus.

Although we basically batted above .500 on economic indicators this week, the market has not yet moved in the direction which we expected.  However, we continue to feel that QE is priced in and market is overbought.

Technically, S&P 500 is slightly above its linear regression resistance level, which is around 1416.  It is also approaching Fibonacci retracement's 0%, which is at 1422.  We believe these are resistance levels.  The support level we are looking at right now is 1360.  MACD of 15.6 is not too far from the 17.6 we saw at the YTD S&P 500 high of 1422.  This may be indicating that the huge upwards momentum we have been seeing the last 3-4 weeks is on its way to slowing down.  In addition, the McClellanOscillator is showing that the market is nearing the overbought level.

Of course, the drug or insurance that the Fed is expected to provide for this market partially explains increase in optimism, not necessarily in the economy but just the market.  Whether the economy will follow the market with its own upward movement remains in doubt, in our opinion; and a 'convergence' of state of the economy and the market will take place.  We think it is more likely that the equity market will slowdown rather than the economy will speed up.  Let's see what Bernanke has up his sleeves at the meeting in Jackson Hole, WY.

By the way, it appears that we won't see much of a dead-cat bounce in FB or GRPN as they are down 2.2% and 8.0%, respectively.  The wait for that GRPN support level to be created continues.  It will be a long wait.  XHB remains in the black today after yesterday's big 3%+ move to the upside.  S&P 500 is up nearly 1.0, while VIX is pretty much flat.    

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