General Commentary
Friday was more than a little unusual. The Nasdaq had problems with its SelectNet and Small Order
Execution System (SOES) which made it difficult to execute trades during the session. To complicate
matters, trading was extended through 5 p.m. EST while the systems continued to be hit or miss. The result
-- an extra hour of confusion in thin trading conditions which added an extra kick to the conventional
volatility of the quarter's final session.
System problems or not, the Nasdaq followed through on its gains earlier this week to close out Friday's
session with a 110-point weekly gain. In a somewhat surprising move, the Nasdaq has taken out a number
of near-term resistance levels in recent sessions. It isn't the direction of the move that is entirely surprising
but rather the magnitude of the move on what has been either largely expected news (e.g. rate cut) or
relatively negative news (e.g. size of rate cut/earnings warnings). Watching the Nasdaq climb this
proverbial wall of worry is encouraging for market bulls and fits with our contention that the index is
positioned for a move to recovery highs.
With June behind us now, investors will be turning their attention towards earnings reports rather than
earnings warnings. We believe there are a number of reasons to be bullish heading into the July earnings
season. First, the Fed has eased rates by 275 basis points since January -- the impact of the first two cuts is
just now beginning to filter through our economy. Second, tax rebates will be mailed out in the coming
months which should lend support to a consumer that has demonstrated surprising strength in recent
months. Finally, energy prices have been dropping recently with price of crude oil currently standing at
$26.25 per barrel. This is well off recent highs in the $29 dollar range and the lower price levels should
reduce expenses for both the consumer and businesses which are heavily reliant on oil prices.
The coming week is a holiday week in which the U.S. markets will be closed on Wednesday. Watch for
lighter volume throughout the week as many professionals vacation ahead of July earnings reports. This
means amateur traders are likely to have a disproportionate impact on market activity relative to typical
sessions. As a rule, this dynamic is generally bullish as less experienced traders tend to favor the long side
of a trade. While the index may be somewhat overbought on a very near-term basis, the overall technical
picture has improved substantially since surviving several sessions of solid tests to the 1974/2000 level.
Regardless of whether we experience a shallow near-term pullback (which is far from a certainty but a
distinct possibility), the trend initiated in April remains intact.
Briefing |
