Today’s very favorable market closing results can be summed up as “Bad news for the economy was interpreted as good news for the market.”  You may rightly ask, “How can this be?”   Here’s the best answer that we have –

The longer it takes for this recovery to really take root, and as long as inflation stays low (which it is – in developed nations), large market participants are anticipating that the Federal Reserve will keep its very accommodative monetary policies in place.  This is bullish for stocks.

That being said, both the equities markets (stock market) AND U.S. Treasuries were higher today.

Here are the important news pieces today –

1. It appears that Greece is not going to default on its loans with the European Union any time soon, as bureaucrats and bankers juggle loans and lending conditions.  There is absolutely NOTHING clear about all this.
2. The Chicago Purchasing Manager’s Index was released with a disappointing value.  The economy is not growing very much, but at this point it appears as if it is not contracting.  The index figure released today was 56.6, DOWN from expectations of 62.5.   A reading ABOVE 50 represents expansion in the economy.  O.K.  Here’s a brief article on the subject.
3. U.S. consumer confidence figures were released today and indicated DIMINISHING confidence.
4. The Case/Shiller index for real estate in U.S. cities broke BELOW 2009 levels, indicating further price weakness for homes.  Here is a decent article on the subject which spells out the results and then directs the subject in terms of bank balance sheet write downs which may be forthcoming.

– Story-Stock Investing –

Our broader U.S. market (S&P 500) is in a lateral consolidation, which is a fancy way of saying that the market is “flat”.  Today’s market dynamics take what we would call the “front selling edge” off the market and place the market squarely in the middle of its lateral range.

Stocks that have been rejected and pushed hard south have caught buyer interests down at recent lows.  Our SMC holding Hewlett Packard, Co. (Ticker: HPQ) is a good example of such behavior.

Let’s answer a question from today, from subscriber-friend “Craig”-

Hey Eric, I meant to ask:  would you call the chart pattern on STEC today “lateral consolidation?”  What are the key indicators of lateral consolidation?

Craig

SMC Answers …. The STEC stock has performed very well over the past week as news of the CEO and COO open market purchases of roughly $6 million of the company stock at recent lows spread through the marketplace. We highlighted this insider activity in our 15Minute Market Update work on the day of the news released, but wanted a bit more time for the broader market to stabilize and to see how the stock would handle this news verses the disappointment of recent earnings.  Working against us was the existing short term downtrend in the market with some strong sell-off days.  We want to congratulate you on moving on this news item on your own and profiting well from it.  Even if the SMC doesn’t make the move, the opportunities that we point to can often lead to strong gains.  It may well be that market participants totally misunderstood the company’s recent earnings report.  Regardless, from a purely technical standpoint, the stock is in a lateral consolidation marked by a channel with a high price boundary of approx. $20.50 and a low price of approx. $16.80.  The stock is certainly trying to find its way now after exiting a nice, clear uptrend in February.

Please click here for the SMC Daily Chart of Simple Tech (STEC) which gives a good picture of what has been taking place with the stock and a picture of the current lateral consolidation.

Readers – Over the past 18 months, Craig has personalized our service in that he often takes our ideas and takes his profits quickly – after a 4-6% move in his favor.  For instance, he has already booked his profit on AMRN and STEC.

A lateral consolidation is perhaps best defined as a clearly recognizable, confined range of price movement over a period of time – which results in the price remaining essentially  “flat” over that given period of time.  Lateral consolidations are easier to see when we draw horizontal lines on the price chart, representing the upper (resistance) and lower (support) boundaries of the price movement.  A stock can move significantly up and down – in sine-wave function – and still be “confined” within a lateral consolidation and offer investors good returns – for those willing to enter at support and sell at resistance points.

Good charts can be printed for free from Bigcharts.com

Tomorrow we are going to write about FCEL .  We also want to show you this week how we take a weekend article of interest and drill down to the story behind the stock.