Stock Market Hits Snooze Button, Will it Awaken Strong?

Major U.S. stock indexes and ETFs finish a sleepy week and search for direction

Major U.S. stock indexes and ETFs went sideways this week in low volatility trade as investors waited for confirmation that QE3 would, in fact, boost stock indexes higher.

On My ETF Radar

A glance at the S&P 500 (NYSEARCA:SPY) shows us that RSI is near overbought levels, daily MACD, which represents momentum, is rolling over, indicating a short term slowdown, the index has stalled at short term resistance and major support rests between 1400-1420.  All of this is within the context of an ongoing bull market.

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All U.S. indexes and many sectors are at or near overbought levels and so a near term correction is likely, however, it will take a major bad news event to break below the 1400-1425 level where major support rests.  This technical set up also gets further support from QE3 and approaching seasonality which favors the bulls.  

ETF News You Can Really Use

Major U.S. stock indexes and ETFs finished a flat week as markets consolidate after recent rallies.

Stock Index ETFs:

Dow Jones Industrial Average (NYSEARCA:DIA) down 0.13% on Friday and 0.1% for the week.

S&P 500 Index (NYSEARCA:SPY) -0.1% on Friday and 0.4% for the week.

Nasdaq 100 (NYSEARCA:QQQ) flat on Friday and +0.2% for the week on the strength of Apple (NASDAQ:AAPL) and its iPhone 5 sales.

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Russell 2000: (NYSEARCA:IWM) +0.47% on Friday and down 1% for the week.

The big news makers were Apple (NYSEARCA:AAPL) which sent shock waves around the world with its release of the iPhone 5, Federal Express which cut earnings estimates and the Dow Transports average which declined to a three month low.   Transports are often seen as a bellwether of global economic activity and so many analysts point to this decline as reason for concern over the real strength of the recent rally.

Overseas, Spain continues  making news as it appears the beleaguered country is moving closer to requesting a formal bailout from Europe which would open the door to help from the European Central Bank.   A global rescue package for Spain would help underpin the crisis in Europe and add to short term confidence regarding the situation in Europe.  In Asia, the Bank of Japan embarked on another round of monetary easing.

Economic reports were mixed as existing home sales beat estimates, single family housing starts rose and the home builders index rose over last month’s levels.  On the down side of things, the New York Empire Index showed a sharp decline to -10.4, missing estimates and well below August’s reading of -5.9.  The Philadelphia Fed report declined -1.9, improving from -7.1 last month but still in negative territory, and weekly unemployment claims improved slightly over last week but missed estimates.  European manufacturing indexes continued their decline as recession settles in over Europe.

The week ahead will see Case/Shiller housing on Tuesday, new home sales Wednesday, and the two big days come on Thursday and Friday.  Thursday reports include weekly jobless claims, durable goods orders, Q2 GDP and pending home sales and Friday brings income and spending reports, Chicago PMI and University of Michigan consumer sentiment, all of which could contain market moving data.

Best Bets for ETFs:

U.S. markets remain in bull market configuration but subject to short term correction.

Top sectors over the last 30 days are Consumer Discretionary (NYSEARCA:XLY) , Health Care (NYSEARCA:XLV) and Financials (NYSEARCA:XLF)

Top performing ETFs over the last month include iShares Silver Trust (NYSEARCA:SLV) MarketVectors Gold Miners (NYSEARCA:GDX) and iShares MSCI Spain Index (NYSEARCA:EWP)

Bottom line:  Wall Street Sector Selector remains in “green flag” mode, expecting higher prices ahead.  However, markets are subject to a short term correction due to overbought conditions.

Disclaimer: Wall Street Sector Selector holds positions in (NYSEARCA:XLF) (NYSEARCA:IWM) actively trades a wide range of exchange traded funds and positions can change at any time.

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John Nyaradi is the author of The ETF Investing Premium Newsletter.