Last week was a slight disappointment. We had some rebounds, but they were on lower volume that means investors were not confident about the current rally and institution money has not flew into the market yet. Even though I like to see we are climbing on the wall of worry, I still prefer one or two up days with strong volume to confirm the reversal of the trend. So by the end of the week, I continue to hold a high level of cash.
I'm not moving to 100% cash, however, because we continue to be in a very oversold market and major averages are still hovering above their key supports. Earnings reporting season begins in earnest next week, and I am guardedly optimistic about it. Expectations are low (year-over-year earnings growth will probably be healthy but well down from a year ago), the market is weak but lately stabilizing, and the number of earnings warnings has been surprisingly low. This strikes me as a setup for healthy buying on positive earnings surprises. Indeed, last week, we had a few earnings reports, and these included some positive surprises. The ones I saw were met with enthusiastic buying. Another reason for guarded optimism is that the price of oil seems to have topped out on Monday. It has been sliding sharply downwards since then. Volume was light last week. I suspect because many traders prefer to wait and see how earnings season shapes up. I'm one of them.
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