Gauging Momentum

I've stated in recent blogs my impression that the negative tones of Europe will continue to be a drain on the market and that I'm a bit uncertain as to what economic reports could likely emerge to shift the momentum back to bullish. Along those lines, I'll posit a possible near term scenario that, while not changing the overall characteristic of what should be a minimal growth market, could provide profit opportunities. And that scenario centers around the upcoming 2Q 2010 corporate reports starting in early July. Given that: (i) the stimulus won't truly wear off and decline until quarters three and four of this year; (ii) employment costs have remained low due to the lack of employment by corporations; (iii) business inventory restockings and the subsequent uptick in manufacturing; and (iv) the stabilized and somewhat resilient US consumer -- it's likely that the 2Q 2010 earnings reports may provide strong for US corporations.

Couple this with the fact that while European news may be consistently negative in nature -- people get bored and de-sensitized to even constantly negative news (so long as it doesn't turn substantially more negative). Therefore, the market (potentially looking for a reason to rally) may indeed come to the following mindset: the European issues are baked in the cake and corporate profits are strong which revive the recovery hopes of the US.

It's still my opinion that the 2nd half of 2010 will be quite stagnate in Europe and show minimal growth (2% or below) in the US. So any robust rally would likely encounter yet another quick correction. However, even sideways markets provide opportunities for money to be made in the waves.

As an aside, the next question becomes -- where would such a rally start from (i.e. where will we be entering July)? Again, it mostly depends on European sentiment. Today should be interesting -- the 1070 level provides both support and a ceiling. Right now its serving as a ceiling. A break above that makes it more unlikely we'll challenge that ultimate support level of 1050.