Stocks are finding that psychological barriers at Dow 13,000 and Nasdaq 3,000 will require broader participation to eclipse. Although both the Dow and Nasdaq have exceeded and held above their 2011 highs, the S&P 500 is having difficulty surpassing its 2011 highs near 1370. And the "riskier" indexes like the Russell 2000 small caps, the S&P 400 mid caps, and the MSCI emerging markets indexes all have quite a lot of work to do to even approach their 2011 highs.
Among the 10 U.S. sector iShares, Energy (IYE) has been the winner this week as oil prices have skyrocketed. In fact, prices at the gas pump have become the new all-consuming topic of the day impacting everyone's pocketbook, and causing worry about its impact on economic recovery. Over the weekend, Iran announced that it would stop selling oil to Great Britain and France in response to a planned European oil embargo this summer. As a result, West Texas Intermediate crude (WTI) rose by $2.65 to close Wednesday at $106.35/barrel, which is the highest price for WTI since May 2011 and a record high for this time of the year. So, it's no surprise that energy stocks have been the market leaders.
Of course, the other perennial leader is Apple Inc. (AAPL). Hulu might joke in its commercials that it is striving to take over the world, but Apple actually appears to be doing it. $500 is now in its rearview mirror as it marches onward toward global domination.
On Tuesday, the EU announced a deal to "rescue" Greece, thus averting a March debt default. However, they had to agree to more cuts in pensions, wages, and public employee jobs, plus healthcare and defense spending. Even before these cuts, Greece has 20% unemployment, and 40% among its younger workers. And of course, such measures will further erode consumer sentiment and economic activity in Greece. And don't forget that their creditors have to absorb a $100 billion hit, too. Nevertheless, bond yields in Spain and Italy have dropped in response, as investors gain confidence that there is sufficient conviction to bolster the other struggling eurozone nations.
Although the U.S. economy and unemployment levels are improving, it's safe to say that the average American is still on a tight budget. And because consumer spending drives corporate earnings growth, Factset Research reports that only 63% of the S&P 500 companies beat earnings estimates this past quarter, and even worse, only 43% beat revenue expectations. So cost-cutting seems to be the driver to meeting earnings estimates.
IndexUniverse reports that ETF funds have been flowing out of U.S. Equity and into International Equity and U.S. Fixed Income, possibly indicating a flight to safety in advance of a market pullback. SPY has lost the bulk of those funds to the tune of about $870 million, and to a lesser extent the XLF and TBT (UltraShort Treasuries) have seen large outflows. Gaining some of those dollars, at least for the moment, has been IYR (iShares Real Estate) and bond funds like TLT and AGG.
Real estate has been getting some investor interest lately as improving reports on housing sales and low mortgage rates have been in the news. Nevertheless, Sabrient's forward-looking SectorCast-ETF model gives IYR a "Least Attractive" rating and an Outlook score of only 8. On Wednesday, the news wasn't so promising as existing home sales for January missed expectations and there was a significant downward revision to the prior month sales.
Looking at the charts, SPY continues to be incredibly resiliency as bulls just won't give up much ground. The overbought technicals have refused to cycle back down. But nothing goes up forever, and RSI, MACD, and Slow Stochastic are all threatening to roll over.
Last week I showed a comparison of the current rally that started at the beginning of October 2011 versus the prior year's rally that started a bit earlier—at the beginning of September 2010—and basically peaked around late February. The past week has done nothing to dissuade that comparison, and I still expect a test of support at the uptrend line, which now meets up with the 50-day simple moving average around 130.