Ignore head fakes – this is a wait-and-see market

Author: Peter Kurata

Covestor model: Smart Money

Disclosures: None

The markets spent the entire month of June in correction mode. During this time, it’s usually best to stay on the sidelines and stay out of trouble. June proved to be a very difficult for investors as the markets nose dived for a couple weeks, then sputtered around before finally putting in a couple of good days to end the month. While the indices climbed impressively to regain the 50 day moving average, this should be taken with a grain of salt, as June ends the first half of the year, when institutions typically window dress to their portfolios. June also marked the end of QE2, the second round of financial “Red Bull” to stimulate the economy and the stock market.

The price gains on below average volume on the Nasdaq confirm that there was little strength behind this move. The indices did manage to record gains for the first half of 2011, with the Dow leading the way at over 7% and the Nasdaq, S&P 500, and NYSE in the 4% – 5% range (Yahoo Finance).

While the overall indices continue to throw head fakes, many leading stocks have reclaimed their 50 day moving average. At this point, it’s a wait a see game as recent gains have come on tepid volume and are not showing much bullish conviction. With July comes the end of QE2, and low expectations for this market to go higher, but the market does have a way of doing just the opposite of what the crowd thinks. For now, we’re remaining cautious, enjoying summer, and letting the markets provide the clues on which way it will go.


Market returns from Yahoo Finance, http://finance.yahoo.com