U.S. Equities Have The Best Week In May 2012 Led By Financials:
U.S. equities finished the week ended May 25, 2012 higher and had the best run all month. Last week, our technical and fundamental analysis forecasts determined short term bearish sentiment was extreme. This doesn’t suggest equities are in comeback mode yet and opportunities like last week could be few and far between if the current extended correction becomes a bear market.
Those who believed the current correction would be short lived were incorrect and some stocks are in bear market territory as leaders slip nearer to 20 percent declines from recent highs.
Until former leaders like Apple regain prominence and the market refuses to find sellers, we would remain cautious about the outlook for equities unless a near-term catalyst occurs via additional liquidity worldwide.
The S&P 500 had the best week in the month of May 2012 and financials held support levels but next week may be riddled with more economic bad news at home and abroad. We are watching the financials carefully to see when they become immune to 3:40 Grexit reports without rebounding higher the next day. When sentiment can change quickly based on news from Europe, this is a reason to maintain a defensive posture until buyers step in and volatility decreases.
The XLF could slip to lower levels in the short-run and selling pressure may continue due to the financial crisis abroad, a slowing China, possible contagion impacts and the current JP Morgan effect. Another quick bounce is also possible and we would not be on the short side until current resistance levels broke based on event driven news.