Trading Range Blahs!

From mid-April 2011 through October 2011, we saw the S&P 500 index decline by more than 19%. It then rebounded to reach a peak of 1419 on April 2nd, 2012. Since that time, we have seen a steady erosion of prices, demand and follow through in the market. As I am writing this, the S&P 500 stands at 1397, which is a 1.6% loss for April. The market’s day-to-day volatility makes this statistic meaningless. It’s the fundamental and technical factors gripping the market now that are more concerning. The economy is still moving forward, but at a considerably slower rate than anticipated. The rate of growth for the first quarter was expected to show a gain of 3.5% but came in at 2.2%. This is well under the fourth quarter rate in 2011. Corporate earnings have been mixed, with some big winners but many companies failing to meet earnings expectations. The good news is that consumer spending is up. The markets have been looking for help from the Federal Reserve to further stimulate the economy. It seems increasingly unlikely that the Federal Reserve will step up with any stimulus because the economy is growing, although at a slower pace. Europe’s economy is stalled, with England now in a double dip recession and Spain back in recession. On a technical basis, short term demand has expanded but long term demand is falling off. This means that a question exists about the intermediate and longer term outlook of the market’s uptrend. The increasing number of stocks selling below their 30 day moving average indicates that investor demand is now focused on fewer companies. The NYSE’s Operating Companies’ advance/decline line failed to confirm the April 2nd highs. That failure was the first divergence since March of 2009. With all of this information, it seems likely that the stock market is headed downward in the future. Although May traditionally produces the peak of the stock market, last year it happened in April. A lack of supply appears to be holding this market together. Bad news could change that in a hurry. As I stated in a previous blog, an average bull market lasts 39 months. This market will be 39 months old in June.