U.S. stock markets face twists and turns ahead as news from Europe, earnings and seasonality dominate global action.
Last week was exciting, if nothing else, as events in Europe continued to roil major U.S. stock markets. The S&P 500 (NYSEARCA:SPY) dropped 2.5% while the Dow Jones Industrials (NYSEARCA:DIA) shed 2% in response to ongoing drama in Greece and Italy (NYSE:EWI). This week promises more of the same.
On My Wall Street Radar
In the chart of the S&P 500 (NYSEARCA:SPY) above you can see how we’re now in a new trading range between 1220-1290, the 50 Day Moving Average is moving up and the index is still below the all important 200 Day Moving Average. The bulls need to reclaim the 200 Day Moving Average soon and also hold the lower end of support at the 50 Day Moving Average of 1195. From a technical standpoint, this is still a bear market until further evidence to the upside is seen.
The Economic View from 35,000 Feet
Europe continues to dominate the news last week as Greek Prime Minister George Papandreou dropped a bomb with his announcement and quick retraction of a national referendum regarding the European bailout program. On Friday he survived a no confidence vote but by Sunday it appeared that a new government is going to be formed and Papandreou is out. This fast moving situation is rocking investors worldwide and Todd Harrison, CEO of Minyanville.com continues to offer some of the best insight regarding this unfolding drama. (Handicapping A Global Market Meltdown)
Meanwhile, in Italy, (NYSE:EWI) the 10 year bond reached a Euro era record as the embattled country deals with its own economic problems and demands from the International Monetary Fund.
The G20 summit meeting ended with no action as it appears that no one in the G20 wants to participate in the European bailout package (except maybe for the IMF) but President Obama said that they had “moved the ball forward.”
So with a new government coming in Greece and the European zone slipping into recession, this fluid situation promises to be on the front burner for weeks to come.
At home, things were more positive as earnings reports continued with more than 15% overall earnings growth rate and more than 70% of U.S. companies beating expectations. This week we’ll hear from bellweathers Cisco (NASDAQ:CSCO) and Dow component (NYSEARCA:DIA) Disney (NYSE:DIS) reporting on Wednesday and Thursday.
Weekly unemployment declined to 397,000 and retail sales grew +3.5% year over year the week ended October 29th and so the economy continues to muddle along in what iShares’ Global Chief Investment Strategist Russ Koesterich calls Welcome to The Great Idle.
Overall unemployment stayed virtually flat, declining to 9.0% from 9.1% with private sector employment growing, government employment declining, and hours worked increasing.
On a seasonality basis we’re in the “best six months of the year” and Jeffrey Hirsch of Stock Traders Almanac sees a new, narrow trading range but a positive end for the year as a down 2011 would be the first losing pre-election year since 1939.
Leading sectors for the week were iShares Silver Trust (NYSEARCA:SLV) and iShares Barclays 10-20 Year Treasury Bond (NYSE:TLH) while a big loser was embattled Italy (NYSE:EWI) dropping 8.5% for the week.
Next week is light for economic news with September Consumer Credit on Monday, October NFIB Small Business Index on Tuesday, weekly jobs on Thursday and November Consumer Sentiment on Friday.
Bottom Line For Stock Market and ETF Investors: Expect more turmoil ahead as Europe dominates the headlines. Overall it appears that this market wants to go up as it usually likes to do going into the end of the year and seasonality and history favor a year end rally. However, all bets are off if Europe implodes.
Disclosure: No positions in ETFs or stocks discussed in this article.
John Nyaradi is the author of The ETF Investing Premium Newsletter.