Monday, May 11, 2015
S&P; Half-Hearted Efforts Don't Make Bullish Case
I read over the weekend some rather simple explanations for the S&P 500 Index recovering on Friday and those mostly have to do with a ‘Goldilocks’ employment report; one that is strong enough to support growth in earnings expectations, but not so strong as to bring the Fed to the eve of raising policy rates. We all like it simple and that much is clear enough in that analysis.
Without going deeply into the reasoning, I‘m of the mind that the March employment report - the previous report that was disappointing when first reported at 126,000 in new jobs created and worse still with Friday’s revised tally of only 85,000 jobs, was rather more a ‘catch-up’ to the first quarters weak production numbers than an expression of further negative implications. There had been 9 full months since the dollar index began its 25% advance and with continued dollar strength through mid-March, having followed the over-advertised nasty winter weather and still ongoing West Coast port difficulties, employers may have decided to temporarily scale back hiring plans.
The lack of bullish advance in the S&P Index over the last two and a half months is inconsistent with the bullish trend which had prevailed from October until then. As such, we are wise to be more alert for trouble and more willing to discount half-hearted bullish measures.
Friday’s bullish advance might represent one of those ‘half-hearted’ bullish measures. In itself, it was a solid bullish performance and the gains were above average for trade over the last months. However, even with the recovery, no new ground was achieved. The weakened bullish trend has been unable, for whatever reason to decisively break resistance at the mid-February high.
While we should be respectful of a bullish advance that captures and holds new high ground, until that happens, the proximity to the strong level of resistance offers a good spot to hedge portfolios and position for another decline.