Some profit taking was expected after Monday’s strong push above the S&P;’s 200-day moving average. Although volume was fairly light, the pullback yesterday was modest, and we remained above the critical 1,114 level on the S&P; 500.
Weaker home and auto sales, amidst worries about Friday’s upcoming jobs report, worked against upward momentum, but no harm was done.
Interestingly, the recent buy signal based on the international Trend Tracking Index (TTI), effective 7/26/10, has shown more upside momentum than its domestic cousin. As of yesterday, the domestic TTI had reached a point of +3.23% above its trend line, while the international TTI had rallied to +3.16% above its respective line.
Maybe it’s the perception (or reality) that internationally more opportunities for growth abound compared to the “ailing” U.S. economy. Even commodities are showing signs of life again, as the Commodity Index is nibbling at its long-term trend line.
Nevertheless, I believe that eventually economic reports will prove to be more crucial to market direction than individual company earnings. The mother of all reports (employment) will be due out Friday.
Any hint that improvements are on the way (unlikely), or that things are not as bad as anticipated (possible), will give the markets the ammunition needed to move higher. In the absence of such outlook, we may see some softness and continue range trading until some other event will end the sideways pattern.
On a personal note, I finally got my lap top virus issues resolved, and I am trying to catch up on accumulated e-mails.