The Casey Anthony of Markets

07/06/2011 10:00 am EST


Igor Greenwald

Chief Investment Strategist, MLP Profits

After a punishing seven-week trial, stocks are suddenly shrugging off bad news left and right. Don’t get carried away, writes senior editor Igor Greenwald.

Three weeks ago, this was a “sexting Bambi” sort of market, as distrusted and popularly reviled as a certain soon-to-be ex-congressman. It was widely deemed unfit for polite company, and certainly not for polite company’s hard-earned savings.

But that was then, and here we are, and now the market on our hands resembles a different Anthony. It has, seemingly, against all odds, been found guilty of nothing worse than a little misdirection.

About the time the criminal trial shocker was delivered yesterday, Moody’s came out with a harsher, if less surprising, verdict on Portugal’s credit standing.

The credit rating agency cut the heavily indebted country’s bonds to junk, and not the highest level of junk at that. It warned that Portugal will need another bailout when the current one expires in 2013—long before creditors will be willing to buy its bonds again.

Moody’s fears Portugal will miss its ambitious deficit-cutting targets, “due to the formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth, and supporting the banking system.”

In the old days, which is to say two weeks ago, the Dow would have been down 100 points on the news before anyone could blink. Yesterday, it barely flinched.

Everyone loves a plucky comeback, and the market has just pulled off one of those. The all-important technicals, followed more closely than ever for lack of conviction, look better than OK.

For the moment, everything not already forgotten is forgiven:

  • Standard & Poor’s thinks the French rollover for Greek debt will amount to a default? The geniuses over at the European Central Bank are a step ahead on how they’re going to finesse that.
  • Crude costlier than it was before the US and other importers tapped their rainy-day reserves? No matter—it’s pedal to the metal for retail shares.

The same talking heads who peddled wall-to-wall doom in June are suddenly bursting with ideas about what to buy.

Perhaps it’s techs, with Accenture (ACM), (CRM), and IBM (IBM) at record highs, and getting plenty of support from Apple (AAPL), Dell (DELL), and even Google (GOOG) of late.

The Dow Jones Transportation Average chugged to a record high before the holiday as well, so maybe railroad stocks are worth riding, as costly fuel squeezes trucking competitors.

Energy producers, industrials, and REITs have their adherents as well.

July is earnings month, and earnings months have handily outperformed in this bull market, which may explain some of the recent price action.

This parade is naturally subject to cancellation without prior notice. If the suspense ahead of Friday’s jobs reports doesn’t send the buyers packing, another jump in oil prices might.

The European Central Bank is likely to hike its benchmark interest rate Thursday despite the evident slowdown in European economies. If outgoing ECB President Jean-Claude Trichet sounds hawkish enough to raise rates again in the near future, he could spark worries that Europe will repeat the mistakes of 2008, when it unhelpfully tightened policy with the world economy already up a creek.

But if Trichet prudently passes the buck to his successor, the euro and commodities could take a hit.

And then the earnings blizzard will arrive, and while it should relieve the gloom of national statistics, there will be plenty of disappointments to discover for a market so inclined after a tiring run.

I’d let current market leaders pull back to their rising trend lines before buying in.

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