On Friday, investors seemed more focused on the federal government’s budget negotiations and on upcoming Q1 earnings than on buying or selling stocks. Q1 earnings start today, with Alcoa (NYSE: AA) reporting after the close, and some analysts have been saying that comparisons with last year’s results could be difficult. Many of the weekend financial publications concluded that these were the reasons for such a disinterest in stocks.
From a technical point of view, it is not important why stocks turned lower — only that they did. Nor is it significant why volume fell to a fraction of what it was this time last year. But it is important that momentum has fallen sharply following the December to late-February rally — and is still falling (see S&P 500 green momentum histogram). Stubborn trends like falling momentum are difficult to reverse and often lead to falling stock prices.
It is fair to say that disinterest in stocks has resulted in a daily range of trading (high/lows) that has become so narrow that as one analyst put it, “the indices have flat-lined.” That flat-line is clearly shown on the S&P 500 at the 1,332 line. Technicians call this a “major resistance line,” and until that line is decisively broken, momentum will continue to fall and investors should remain cautious and defensive.
But despite the lethargy in the overall market, it is seldom that there isn’t a single sector in which to invest since the causes of lethargy and even fear create opportunities in other areas. Currently the broad sectors that are advancing include commodities such as food products like cattle, pork bellies, corn, etc. And gold, silver and energy again led with vigor, especially the Canadian markets.
Despite the steep angle of advance seen with silver and other commodities, these groups continue to offer investors the best opportunity for near-term success due to their ability to offset the possible future inflationary trend referred discusses by the Fed at their recent FOMC meeting.
For one silver stock to buy now, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
