Weekly Update-July 13, 2012

By: Michael Vodicka

“The market continues to be extraordinarily resilient in the face of many challenges.”

The market took a decidedly bullish turn this week, breaking a tough 6-day losing streak on some relatively strong earnings and a surprisingly bullish read on consumer sentiment. After Friday’s big rally, the Dow Jones added .4% on the week, the S&P 500 gained .2% while the tech heavy NASDAQ fell 1%.

The market was soft for most of the week, logging six consecutive losing sessions through Friday. Although that’s a fairly bearish run, the good news is that none of those days were very deep in the red. It was more like a slow bleed lower. Which is unusual for the market, because as they say, stocks take the stairs up and the elevator down.

Ultimately, that red but buoyant movement was a bullish signal, because when the market cheered a positive read on consumer sentiment and pretty solid quarterly results out of the banking sector, the stage was set for a big rally into the weekend as the short’s were squeezed.

Big picture, the market continues to be extraordinarily resilient in the face of many challenges. Europe is a mess, China is slowing, unemployment remains high. But for the time being, investors are just sharking it all off, choosing to focus on earnings and the fact that if the economy or market does weaken, the central banks will be there to stimulate. So for the time being, the bulls control the market as the Street continues to climb the wall of worry.

Updates:

Verifone Systems, Inc. (PAY) led the pack with a 13% gain on the week after jumping more than 11% in one day on news the company had signed a $35 million contract to install its payment systems in 6,500 cabs in Washington. That’s a huge contract for the company and a great example of the fundamental transformation that is happening in the world of electronic financial transactions. Verifone took a serious beating this spring on some write downs and because of the market, but since then shares have rebounded nicely, now more than 20% off the recent low.

Here’s a leading indicator. Powershares Oil Fund (DBO) was up 3.5% on the week as crude continues to recover from a recent bout of weakness. Investors tend to move capital into energy and more growth-driven sectors on a bullish turn in sentiment, so that upward movement in oil is definitely a signal that the Street is looking for a little more risk right now.

And finally, large-cap stallwart McDonald’s Corp (MCD) was also on the move, climbing 3% on the week after announcing it was planning to hire 1,000 new employees in Memphis. McDonald’s was the #1 performing Dow stock last year, climbing from the mid $70’s to above $100. But shares have cooled since, hanging out around $90 for most of the last six months. But that area looks to be a pretty solid base now, and with shares closing above $92, the foundation could be set for another leg higher ahead of the company’s Q2 results later this month.

That’s all for this week, but until next time, here is a good article discussing how the recent drough through the Midwest has sent grain prices shooting higher. Enjoy!

Grains, Soybeans Extend Rally on Dry Weather

Your Investment Partner,

Mike

ABOUT THE AUTHOR

Michael Vodicka

Michael Vodicka is the president and founder of the Vodicka Group Inc., a licensed investment advisor (Series 65) and a financial journalist.