Can Market Momo Continue? Watching for Breakout this Week

GS, multiple analyst upgrades, and little economic news to spoil the party. Are we ready to break out?

This morning GS is out with a bullish call on SPX, raising the end of the year target to 1,060, based on the ~14x forward P/E. Goldman’s strategists also raised their expectations for 2009 SP earnings, boosting them to $52, mostly a result of lower financial losses and higher operating leverage.

In its usual sellside double-speak, they also acknowledged that there is still some risk of a ‘double-dip’, so either way GS will prove to be correct.

Why should we care? Well, we are approaching the upper end of the up trending trading channel. With little economic news coming this week and no major policy changes to come out of the White House (fingers crossed), I think the momentum we are seeing in the market will likely continue. The successful resolution of CIT clusterf$&#!, several key upgrades from on the Street(CAT, DIS, CSCO,) should also give the market some boost.
We are seeing better than expected earnings thus far this July, with analysts clearly underestimating the operating leverage resulting from significant cost cutting, and revising up up their models that they severely ratcheted down just a few months ago. So the beat goes on.

As we have postulated in the past, there is still plenty of cash on the sidelines. As VIX continues to decline and remain at multi-month lows, the 'fear' trade is no longer a way to make money. Cash, bonds and other ‘’safer havens’ are going to continue to see outflows, especially as the market continues to move higher.
Generally, chasing momentum is not my game, I much more prefer to buy on a pullback (see my previous post), but one can make some decent money, playing range breakout. If you are planning to chase this rally, raise your portfolio beta (go to more volatile, higher risk positions) and continue to rotate into energy, materials, industrials, etc. The same rotation was also suggested by Goldman.