Dallas, TX
July 27, 2010, 08:00 EST		 Dr. Joe Duarte's Market I.Q.


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Wall Of Worry Investing Returns
What's Hot Today:

U.S. stock index futures were rising in early pre-Wall Street action. The S & P 500 is entering a critical trading band between 1115 and 1131.

Today's Economic Calendar



News For Thought

Afghanistan: U.S. armed forces members arrested for fuel theft. War is hell, but it is also a fertile ground for theft, abuse, and extortions. According to The Wall Street Journal: "U.S. investigators arrested two U.S. soldiers and suspended a pair of Afghan trucking companies on suspicions they helped the soldiers steal $1.6 million in fuel from a military base in eastern Afghanistan. The arrests and suspensions come amid rising scrutiny of the $2.16 billion trucking contract system that has successfully supplied coalition troops but, critics say, also fueled corruption and anticoalition violence during the nine-year-old war. Suspicions about the soldiers were raised after colleagues, while going through files in their offices, discovered more than $160,000 in cash stuffed into pasteboard boxes at the outpost in Logar province, south of Kabul." In a related story, the Journal reported: "U.S. and Afghan authorities are setting up a joint task force to monitor the billions of dollars in cash flown out of Afghanistan every year, officials said, as the U.S. announced debt-relief for the war-ravaged country. U.S. and Afghan officials say they believe at least some of the money leaving the country comes from corruption and opium trafficking. Afghanistan's Finance Ministry and border police will contribute to the task force, working with officials from the U.S. Treasury Department and other agencies, said the U.S. ambassador in Kabul, Karl Eikenberry."

Seattle cabbies engaged in creative part time work, crime. According to ABC News.com: "A ring of Seattle taxi drivers did more than provide rides around the city, prosecutors claimed as they charged 22 cabbies with running a stolen property trafficking ring." The report added: "The Seattle Police Department's Major Crimes Task Force began the investigation after receiving complaints, which date back to 2006, from the community and retail businesses about suspects involved in trafficking stolen goods, police records state. The documents state that the suspects received items stolen from several businesses, from burglaries as well as from car break-ins."

Iran: Wikileaks detail connection to Al-Qaeda, Taliban. According to The Wall Street Journal: "U.S. officials and Middle East analysts said some of the most explosive information contained in the WikiLeaks documents detail Iran's alleged ties to the Taliban and al Qaeda, and the facilitating role Tehran may have played in providing arms from sources as varied as North Korea and Algeria. The officials have for years received reports of Iran smuggling arms to the Taliban. The WikiLeaks documents, however, appear to give new evidence of direct contacts between Iranian officials and the Taliban's and al Qaeda's senior leadership. It also outlines Iran's alleged role in brokering arms deals between North Korea and Pakistan-based militants, particularly militant leader Gulbuddin Hekmatyar and al Qaeda."

Wall Of Worry Investing Returns
S & P 500 Move Above 1131 Could Extend Current Bounce
The S & P 500 had a nice day on Monday, July 26. But the real work is about to start for the bulls as the index is about to encounter a narrow band of very strong resistance between 115 and 1131.



Chart Courtesy of StockCharts.com


The rally was broad, bringing the NYSE advance decline line (NYAD) to within one or two good days of breaking out to a new high for this rally. And while this is a positive, we'll note that the Nasdaq advance decline line is lagging. As we've said here many times before, the NYSE advance decline line takes into account the action of ETFs, bond funds, and preferred stocks. This distorts the overall picture in the stock market to some degree. Still, it is a positive.



Chart Courtesy of StockCharts.com


The surprise of the day was the breakout for the Dow Jones Industrial average (INDU), which is the leading index in this latest rally. Much of that may have to do with the dollar's persistent weakness. Most of the stocks in the Dow are export companies which are aided by a weak dollar.



Chart Courtesy of StockCharts.com


Still, the small stocks in the Russell 2000 (RUT) also moved higher, although this area of the market is lagging behind the blue chips to some degree. What's a total positive for the markets, though, is that all three indexes, the Dow, the S & P 500, and the Russell 2000 are above their 200-day moving averages. That means that the long term trend has turned back toward the positive.



Chart Courtesy of StockCharts.com


So while the news cycle seems to be turning to the worst we've seen in a very long time, the market is starting to climb the proverbial wall of worry. As cynical as it sounds, that's more of a positive environment for investors, as the worse the news seems to get, the more the market is starting to strengthen.

Much of that may be the notion that we addressed here last week. As the news worsens, and the Obama administration dig in its heels, the public is increasingly negative with regard to the direction of the country. As the Republicans learned in the last election, the public will vote the party deemed responsible for the current situation out. And despite the White House's persistent blaming of its troubles on Mr. Bush and the Republicans, things haven't improved much during their tenure. And polls consistently point to increasing voter anger.

So, what's this rally about? No one knows, but it is possible, that aside from the glimmer of good news that has sprouted in the outlooks of companies like FedEx, the market is starting to discount a change in the political balance in Washington, to one of a more friendly stance toward business.

Conclusion

The market rally is gathering steam. The reasons are nebulous, but are likely a combination of changing expectations among traders with regard to the political balance in Washington, as well as the potential for some improvement in the global economy.

A long term bull run is not something that we are expecting at this point. But a modest rally that could last a few more weeks is not out of the question for now. The S & P, though, has to get above 1131 convincingly to confirm the overall bullish tone that seems to be increasing.

Investors should have been building small positions in stocks over the last few days and should be adding to them in the next few days, although caution is still warranted. Visit our individual sections for more ideas.

We'll be on Twitter some time today before the market closes with some updated comments.

Know when to sell and how to make money when the market falls. Get a detailed trading plan in your pocket. Read Dr. Duarte's All NEW Books "Market Timing For Dummies." and "Trading Futures For Dummies." The Trading Manuals for All Seasons. Also Available As Kindle Books.

 

Market Moves - Stock Of The Day
3-M (NYSE: MMM) Shows Some Muscle
Industrial giant 3-M (NYSE: MMM) is leading the Dow Jones Industrial Diamonds ETF (NYSE: DIA) higher.



Chart Courtesy of StockCharts.com


3-M (one of our currently recommended stocks) is up 17% since bottoming on June 9, compared to a mere 4.89% in the S & P 500 during the same period. The S & P failed in its bid to extend its rally in early July and made a new low, while 3-M held its ground and has steadily ground higher.

The dollar has been weakening over the same period, and 3-M which has a large international presence is benefiting from the lower dollar to a very strong degree.

This science heavy company recently beat earnings estimates and boosted expectations for future earnings throughout the year. The company has expanded its reach into emerging markets and has introduced a host of new products that are selling well over the last twelve months.

The bottom line is that international growth, if you have the right product mix and the wherewithal to get the market cycles right, is quite possible, even in this economy.

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