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ETF Periscope: Wall Street Shuffle and the EU Hustle

Posted on the 31 October 2011 by Phil's Stock World @philstockworld

Courtesy of Daniel Sckolnik, ETF Periscope

Wall Street Shuffle and the EU Hustle

“Many people take no care of their money till they come nearly to the end of it, and others do just the same with their time.” —  Johann Wolfgang Goethe

The sound you heard this past week was the market blasting upwards, reacting to what would seem to be, by all indications, good news out of Europe. But will this newfound wave of euphoria last?

While it is undeniable that Wall Street is heading towards one of its best Octobers ever, it is certainly worth asking if a new Bullish trend is indeed in the making or if we are simply witnessing a relief rally off the recent severe market depression.

Looking at last week’s action, there are a number of reasons to think that Wall Street can remain in the black for the year, something that seemed not only uncertain, but also a bit unlikely,  as recently as a few weeks back.

First off, the performance of the major indexes was impressive, and they have now bounced back over 16% from the year’s lows hit during the first week of October. The Dow Jones Industrial Average (DJIA) ended the week 3.6% higher at 12,231, making it now five weeks in a row that the blue-chip index has tracked up. The S&P 500 Index (SPX) is now in its fourth consecutive week of gains, landing at 1,285 and sending the benchmark index up 3.8% for the week. The Nasdaq Composite Index (COMP), meanwhile, traded in last week’s slight loss for a 3.8% gain. It ended Friday’s session at 2,737.

Secondly, the strong numbers reflect a certain degree of breakout that occurred, technically speaking. Thursday, both the Dow and the S&P 500 broke through their respective 200-day moving averages, the first time since early August that has happened. This corresponds to an emergence from a sideways pattern that has been going on in the equity market during this same period.

Granted, it has been one wild version of sideways, with enough dives and swoops to satisfy even the most serious roller-coaster aficionado.

Yet the current levels are hardly at such a lofty altitude that they can’t retreat back to the gravitational pull they’ve been in for the bulk of the last three months.

So what will it take to keep the market on the uptrend this week? The short answer is simply this: Continued good news, this time on the domestic front.

The Federal Reserve will have the opportunity to keep the Bulls on a roll, and in this particular case, it shouldn’t take a whole lot. All Ben Bernanke has to say during Wednesday’s press conference is that U.S. growth rate remains on track. It would likely take a serious revision downward of the most recent, surprisingly positive, growth rate projections to put Wall Street in a funk.

On Friday, the expectation is that the new unemployment report will show that enough jobs will have been created to keep things at the stubbornly consistent 9% level. This number should keep Wall Street happy, though it will hardly be a consolation to those who can’t find work.

If the news stays positive throughout the week, including the final wave of third quarter earnings reports, the Bulls could gain some serious traction and the year’s highs could even be tested.

On the other hand, the European Union’s debt/banking crisis hasn’t really gone away. It is just that last week’s promises of bad haircuts to bond holders increased leverage to the region’s bail-out fund, and infliction of even more extreme belt-tightening to the Greek citizenry seemed to mollify the market. However, the fact remains that nothing has actually been done yet, and no actions have really been put into effect. Only plans have been agreed upon, at least in principal. Sentiment toward the likelihood of success of these promises can easily shift, as we have seen these last three months. If this occurs, the Bulls may be brought up short, and quickly.

While it is nice to see the market catching some wind behind its sails and moving forward at a nice neat clip, anyone who is not keeping themselves well-hedged against a moody market probably suffers, to some degree, from a short-term memory loss.

ETF Periscope

Full disclosure:  The author does not personally hold any of the ETFs mentioned in this week’s “What the Periscope Sees.”

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