Market Insights

Markets Are Stepping Up

Lots of convergences about to play out this coming week with a plethora of earnings, a Fed meeting and important economic data including a first look at 4th quarter GDP.  Markets could be considered overbought or neutral by different metrics.  Sentiment has become rather ‘bulled up’ (more on that below) but that is not necessarily a reason to sell if the market is trending.

Steppin’ Out

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This coming week will be the heaviest so far with earnings.  So far it has been ‘mixed’ as I had expected.  Last week strong results from EBAY, IBM, UNP, FCX, SLB, MSFT and INTC;  while GOOG and C were the big disappointment among a few others.  Financials escaped the scalpel with good posts by GS, MS, BAC, USB.  Some of the names I’ll be looking at this coming week to step up for a plays include:  COP, OXY, MUR, NFLX, SWK, BTU, IGT, CSX, ATI, CAT, POT, CY, RVBD, QLGC, SBUX and a slew of others.  The earnings will tie into the economic data and advanced look of GDP.  Some estimates have the growth as high as 3.5% but consensus is 3.1%.  Decent job growth, solid economic internals and positive sentiment probably lifted the economy to these growth numbers.  The key of course is guidance and outlook.  So far it has not been too bad.

The Fed has a two day meeting upcoming and I do not expect much different to occur than the last couple of meetings.  Bernanke has talked endlessly about his displeasure with job growth and will continue to pound that drum.  The Fed will remain accomodative and fan the flames of potentially more ‘easing’.  The economy does not need this shot but the ‘threat’ or presence of the Fed is critical for psychology and market sentiment to remain strong (not necessarily bullish but rather confident).

Market sentiment is solidly in the bullish camp, but more importantly it’s confidence that is improving.  Overbought readings, too many bulls in surveys, low put/calls (chart below) and multi-month lows in the VIX (chart below) – sure, I get that we could (should?) see some backing off – heck we have not seen a sizable drop down on the close since just after Christmas.  Maybe some of the issues nagging the market have separated from the strong correlation of equities we witnessed in 2011.  It’s scary to just dive in to the markets with this much bullishness – I know how hard it can be, but the character has changed and I’m certain more will come back in to play before too long.

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