The S&P 500 is trading right around its 50-DMA but investor buying remains relatively high, meaning the index could be in store for a nice bump, which could yield some great returns for quick-return investors. Traditionally, when an index is trading along its 50-DMA, or any trendline really, the natural reaction is for it to bounce off the line. For the investor looking for short-term profits, this could be a very opportune time to invest. Overall, the index is up 15% or so for the year.
Going from the macro to the micro, some of the companies in the S&P 500 that recently posted the biggest gains were in the retail sector. Urban Outfitters (URBN) and the TJX Companies (TJX) posted the most solid gains in the index, riding the buying wave that usually precedes back to school sales (the TJX Companies include discount retailers such as Marshalls, Homegoods, and the eponymous TJ Maxx), although other retailers, especially J.C. Penny’s (JCP) and Best Buy (BBY), continued to see their market share deteriorate, although not as badly as was estimated. In fact, while J.C. Penny’s stocks retreated from their daytime highs, they were able to rally and were up 6% overall by midday. J.C. Penny’s still remains a very risky buy, however, with continuing news coverage of upper management upheavals, declining sales, and flagging consumer confidence. When it comes to J.C. Penny’s stocks, our message is clear: buyer beware.
Home Depot (HD), on the other hand, had a banner day, posting quarterly net profits overall. And in spite of a recent dip below its 50-DMA, buyer confidence remains high. The trendline, however, suggests that stock prices for Home Depot will continue to slide. This could mean these buyers know something the rest of us don’t, or it could simply mean that they’re investing with their emotions, not their brains. In any event, Home Depot’s main competitor, Lowe’s, will post their quarterly results later in the week, so it won’t be until then that we can establish a larger trend in the big box home improvement stock viability.
But let’s get back to the macro: the Fed is going to be releasing its minutes this week – which will include hints about future U.S. monetary policy – and this effectively puts the markets on hold. Investors want to know the contents of those minutes and what kind of stimulus money will be injected, or not injected, into the economy before making any large leaps in buying or selling. Depending on the content of those minutes, we could see the S&P 500 entering a very bullish period or we could see it continue along its current path, following its 50-DMA. Fed chairman Bernanke has promised economic policies will continue to be favorable for businesses, but it won’t be until the release of those minutes that investors will know for sure.
