NO RESPECT Still For the Market

Markets ended the most successful first quarter since 1998, and if you recall that was a pretty good year (and led to even more upside for the next year plus). 

We’re certainly in a different time and space here but as we know patterns repeat, and maybe we can identify one and ride out the trend. The numbers: SPX 500 was higher by 12% this quarter while the Dow Industrials picked up 8%, the Nasdaq Composite gaining an outstanding 18.6%.  

To say the least, these are enviable numbers for an entire year let alone a quarter. What can we expect during the next go around?

With the great numbers in the bag for the quarter markets are clearly anticipating some economic growth ahead, yet still not much respect. Volume has dragged on slowly and while sentiment is improving it usually peaks when the market does. 

We know markets discount news and the economy by about six to nine months, so late summer and fall we should start seeing the results. The economic data of late has been good too, but likely discounted several months back. If you’re trading/investing today on the data you are late to the party. 

We’ll get underway with earnings season in a couple of weeks which should show some of the good/bad from the previous quarter. 

What are we looking for? Guidance is always key, how is the outlook for the rest of 2012? Most firms ended 2011 in a good spot but there are still uncertainties out there. 

I look for much of the same as the last couple of quarters – the ‘have and the have nots’ will be rewarded or punished accordingly. The economy probably grew 2.5-3% during the first quarter which would support decent numbers. 

As information, profit expectations have been coming down in recent weeks, perhaps setting the stage for some excitement. At last glance S&P is expecting paltry growth of less than 3% for operating earnings from a year ago.  

Let’s remember last year when the last 2 1/2 weeks the world was at a virtual standstill following the Japan earthquake/tsunami. 

There is always that ‘unknown quantity’, some outlier-black swan event that could trigger a response. You can’t really play that low probability event other than buying some extreme downside protection. Let’s just go with the flow until it doesn’t work for us. Trends can last longer than anyone expects. 

Bob Lang is the Senior Market Strategist for options trading newsletter Explosive Options