Weekly Wrap Up, June 27 - July 1st 2011

Economy: ISM New Orders vs Inventories ratio suggests future economic strength.

The ratio above is at levels from where it usually starts to go up, meaning that in the near future businesses will be faced with increased new orders compared to their inventories. This means rising capital expenditures, employment and inventories, in other words, increased economic growth.

S&P500: Strong week pointing higher.

Last week market action was very strong. As seen in the chart above, previous such strong weekly candles coming after greater than 7% corrections led to more upside.

Generally, strong bull legs are followed by weaker ones (purple arrows). In 2010 the market went up 17% after the 32% rise in 2009. Now, after the 30% rise from September 2010, a 15% rise would put the market at 1446.

Breadth was strong: in just one week there were 2 consecutive days with greater than 80% up volume and one day with greater than 90% up volume.

One Week, One Stock: First Solar, Inc. (FSLR) - looking bad

Sales growth is expected to slowdown a lot in FY 2012 ...

... while operating margins are dropping fast on a yearly and quarterly basis ...

... and EPS estimates are revised down

However, the market already knows it and the stock is down ...

... so it may get close to a buy point as soon as the problems with operating margins go away.

Looking Forward

Two major events next week:

> European Central Bank meeting: a rate hike is in the cards. Corrections of about 1% or to the 1.44 zone, before the announcement, are buying opportunities for EURUSD.

> US Employment Report: My current view is that the market will anticipate a strong number since other indicators for June were strong. I will buy SPX on pull-backs before the announcement.

Ideas

Time the intraday market swings by fading spikes in the put/call ratio (detailed post here)