July 05, 2011 at 06:00 AM EDT
Week-long Rally Shows Bull Market Still Has Some Kick Left
U.S. stocks ripped higher every day of the past week following positive news on U.S. manufacturing, Greek sovereign debt and an absolutely epic amount of short-covering. The past week's rally has shown at least that the spirit of the bull market still lives. It rarely pays to be bearish for more than a few weeks at a time, and even then only very selectively. So long-term investors need to keep their eyes on the on the horizon until sellers can prove their moxie. Right now the set-up is more than likely a stutter-step rally back toward the highs for the major indexes until the second or third week of earning season -- around July 18 -- and then the picture changes. While second quarter earnings were probably decent for large companies due to overseas sales, low employee expenses and low interest rates, forward guidance is going to be a challenge. Already we're seeing more companies than normal cutting guidance, and now we'll have to see if investors are willing to overlook that -- or whether it will begin to matter. Last week's baby bull market rally gave the markets a nice little pop. The Dow Jones Industrial Average rose 5.4%, the Standard & Poor's 500 Index rose 5.6%, the Nasdaq rose 6.1% and the Russell 2000 small caps rose 5.3%. Breadth was very good, at 4-to-1 in favor of advancers, as new highs surged to 414 compared to 50 new lows. It was very curious the market rose in such spectacular fashion just as the second round of quantitative easing, or QE2, ended, because it looked exactly like the start of QE2. I'm not saying that the Federal Reserve helps engineer these rallies to make itself look good, but I will say it's an amazing coincidence. And I don't believe in coincidences. Another notable element of the rally was that it came on virtually no company news. Got to like that surprise attack by the bulls. About the most interesting corporate action of the week was the revelation of a new stake in specialty truck maker Oshkosh Corporation (NYSE: OSK ) by activist Carl Icahn. Since that's actually not particularly exciting, it just goes to show what a slow news week it was. The only stocks that look fantastic are the defensives such as Cigna Corporation (NYSE: CI ) and McDonalds Corporation (NYSE: MCD ) - or the kinds of stocks that do best in the weakest conditions. Some financial companies have shown signs of stirring following some good news on the international and domestic regulatory front. American Express Company (NYSE: AXP ) is almost back to a new high, and Wells Fargo & Company (NYSE: WFC ) is showing a pulse, and some energy services stocks, like Core Laboratories N.V. (NYSE: CLB ) are still making new highs. Click here to continue reading...
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