Recapturing the 50-Day Average

After a seven-day run higher in the equity markets, stocks in the benchmark S&P 500 Index now have recovered a majority of the losses they sustained during the previous two weeks.

The recent buying has lifted the SPDR S&P 500 (SPY) back above its 50-day moving average. The Dow Jones Industrial Average also now is trading above its 50-day average. Of course, not all major indices have recovered as briskly.

Small-cap stocks, such as those in the Russell 2000 Index, and large-cap tech stocks, such as those in the PowerShares QQQ Trust (QQQ), remain below their respective 50-day moving averages. Although the so-called Qs have staged a nice comeback during the past week, the index hasn’t yet been able to push above its short-term trend line.

The big talk out there among market pundits, investors and the financial press is expectations for the economy. It seems that nearly everyone is expecting big things from the economy, both here and aboard.

Now, however, we need to see the proof in the pudding.

So far, the economic data has been rather mixed. On one hand, you have slowing China growth, tepid gross domestic product (GDP) metrics here at home and today’s disappointing housing data. On the flipside, retail sales are strong, bond yields remain low and there have been steady gains in the job market.

I think that before stocks can really make a big break to the upside, we are going to have to see some outstanding economic data that supports another leg higher in equities. So far, that data just has not shown up, and until it does, I suspect we’re in for more sideways trading that will have the major indices bouncing both below and above the 50-day averages.

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