Looking at the data, tech and consumer discretionary have the momentum for now, writes Ron Rowland of All-Star Fund Trader.
We saw a paradox in the headlines earlier this month. Wall Street and other financial centers came under attack by protesters. People had remarkably similar complaints in New York, Rome, and Hong Kong. They think the rich are getting richer on the backs of the poor and middle class.
At the same time, stocks had a great week.
Officially, the US economy has been out of recession since June 2009. In the subsequent two years, inflation-adjusted median household income actually fell 6.7% to $49,909, according to a new study of Census Bureau data by Sentier Research.
This means that the "average" household saw its income fall more in the "recovery" than it did in the preceding "recession." For the entire cycle (December 2007 through June 2011), real median income dropped by 9.7%.
Americans who think their standard of living dropped the last few years have a point. Their experience is hard to reconcile with prosperity at the top of the pyramid. A lack of solutions enhances the frustration in the US and elsewhere.
For instance, leaders of the G20 nations announced an agreement to take "all necessary measures needed to stabilize the financial system." Great. So what are these measures? We have no idea.
Even Treasury Secretary Geithner seemed unimpressed. He was “encouraged by the direction and speed at which the Europeans were moving" but went on to say "it’s very hard to judge the impact that something will have until you see it take shape…They clearly have more work to do on strategy and details.”
Markets clearly expect the presently-nebulous plan to solidify soon. If it doesn’t, investors may be the next group to Occupy Wall Street.
Equity Strategy
Apple (AAPL) confounded bears by roaring back last week. Some more consolidation would not be surprising, but for now AAPL looks worth holding.
Perrigo (PRGO) also made up some lost ground and is near the top of its recent trading range. Momentum is improving, so we may see a breakout in PRGO soon as well.
Fund Strategy
Since the S&P 500 represents an average, some areas are above-average and others are below-average. Internationally, just about everything looks worse. Domestically, the midcaps and small caps are underperforming the large caps.
Three of the ten major sectors are in line with the benchmark while five look much worse. Only Technology and Consumer Discretionary are performing "above average." They also happen to be the only two groups that have broken out of their recent trading ranges.
If this rally persists, then Technology and Consumer Discretionary will likely supply the upside leadership and where we would anticipate establishing new positions. However, for now, they are very much alone and in the minority. We will not make any changes to our current defensive positions today.
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