09 May
Daily Market Commentary

Week In Review: Russell 2000 Tests Support

RUT--

Stocks Defend Support- For Now:
In the short term, the market continues tracing out a large topping pattern. The top will be confirmed if/when the neckline is breached (on a closing basis). On Friday, the Russell briefly undercut its neckline and then rallied and closed higher on the day. Underneath the surface the benchmark S&P 500 and DJIA continue to outperform while the Nasdaq, Small/Mid Cap stocks continue to lag their peers. The usual suspects- Biotechs, high-beta, and growth stocks remain under pressure. As previously mentioned, the Nasdaq and Russell are forming Head & Shoulders topping patterns but these patterns need to be confirmed (neckline breaks on a closing basis) which will confirm the large topping pattern we have seen form over the past few months. Until then, this is nothing more than a sloppy base to consolidate 2013′s very strong rally. Also keep in mind, if the S&P 500 and DJIA hit new 2014 highs then this topping pattern will be negated and this will be a larger basing pattern. If the market moves higher an early entry point will be triggered if/when the Nasdaq and Russell break above their respective 50 DMA lines and respective downward trendlines (within their right shoulder).

MON-WED: Slow Start To The Week

Stocks opened lower but closed higher on Monday after a stronger-than-expected reading of the U.S. services sector countered concern about conflict in Ukraine and growth in China. Target slid after news spread that its Chief Executive and Chairman Gregg Steinhafel would step down after the massive data breach late in 2013. A Ukrainian military helicopter was shot down over a rebelled-held Eastern town, with the pilots surviving which sparked fresh concerns. 

Stocks fell on Tuesday causing the small-cap Russell 2000 to close below its longer-term 200 DMA line for the first time since November 2012! A slew of large financials got clobbered as the selling spilled over into that highly influential space. BAC, JPM, C all got smacked on and the former two broke below very long two year upward trendlines (not a healthy sign). In other news, the US dollar broke below support (a long multi-year upward trendline) which caused a slew of other currencies to rally (Euro, Aussie, Yen, Cad, etc).
Stocks opened higher on Wednesday after tensions eased in Ukraine.after reports spread that Russian President Vladimir Putin was willing to discuss the crisis in Ukraine with regional leaders. Janet Yellen spoke in the morning and largely reiterated the Fed’s easy money stance. A slew of high-beta stocks reported earnings and the results were mixed.

THURS & FRI’S ACTION: Sell In May?

Stocks ended mixed on Thursday as the DJIA rallied while the other popular averages fell. Before Thursday’s open the European Central Bank (ECB) and the Bank of England held rates steady but the ECB said they want the euro lower. The euro fell hard on the news. Stocks were relatively quiet on Friday as the tape remained split. A slew of momentum names reported earnings over the past few days. The action was mixed to mostly lower which was not ideal for the bulls. Priceline Group (PCLN), Tesla Motors (TSLA), and Jazz Pharmaceuticals (JAZZ) all fell after reporting earnings while Green Mountain Coffee (GMCR) and Solar City (SCTY) rallied.   

MARKET OUTLOOK: AGING BULL

Stepping back the market is building a new topping pattern/base up here as investors digest last year’s strong rally. Remember, the bull market turned 5 in March 2014 and the last two major bull markets topped out after turning 5 (1994-March 2000 & Oct 2002-Oct 2007). Clearly, this bull is aging which means the easy money from this cycle is probably behind us and it will get a lot trickier as we move forward. If the top is confirmed a new leg lower will likely follow. Until then, patience is king. As always, keep your losses small and never argue with the tape.

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11 Apr
Daily Market Commentary

Week In Review: Stocks Clobbered

SPX- Monthly

Ugly Action Continues On Wall Street:

The market sold off hard last week as sellers continued to pound stocks. As previously mentioned, the vehemence of the sell-off suggests more time is needed before the bulls regain control. The tech-heavy Nasdaq composite has fallen (on heavier volume) in each of the past 3 weeks. All of the major averages are now down on the year and the weakest areas remain- biotechs, momentum, and growth stocks.
In the short term, this suggests the market continues getting weaker, not stronger. On Friday 04/04/14, the S&P 500 hit an intra-day record high of 1897, three points shy of the psychologically important 1900 level, then reversed and negated its latest breakout of 1884. Since then, it negated all important areas of near-term support (1850, its 50 dma line, took out March’s lows and negatively reversed for April). The Nasdaq and Small-cap Russell 2000 indices are weaker, and are now down ~8% from their 2014 highs and trading near their respective 200 DMA lines. The Biotech ETF (IBB), broke its 200 DMA line on Friday, which bodes poorly for the major averages. We have a full section dedicated to reversals in our weekly report. Get it here

MON-WED: Brief Rally Fails

Stocks fell hard on Monday as sellers continued to dump growth and momentum stocks. Geopolitical woes resurfaced after tension spread in Eastern Ukraine, where pro-Russian protesters, demanded referendums on independence and took control of government buildings in four cities. Most notably, protesters in Donetsk called on Russian President Vladimir Putin to send in Russian peacekeepers. Fear spread that more areas of Ukraine will want to secede and join Russia like Crimea did in March. Stocks bounced on Tuesday as the bulls showed up and defended support for the S&P500 (recent lows and 50 dma). Utility stocks were the top-performing sector on Tuesday, which is typically a defensive area for the market. However, a ton of money has been moving into this space in recent months (as money moved out of growth) and the countercyclical group ended Tuesday with a 10.3% year-to-date gain, making it the strongest area in the market right now.
Stocks extended their gains on Wednesday after Alcoa (AA) officially kicked off earnings season. The aluminum giant gapped up on Wednesday after announcing Q1 results. The stock is no longer in the DJIA but is still closely watched as the official start to earnings season. The Fed released the minutes of its latest meeting which confirmed that they will continue to help the market, if economic conditions worsen.

THURS & FRI’S ACTION: Sellers Are In Control

The rally was short-lived as stocks plunged on Thursday and Friday. The benchmark S&P 500 closed below support (1850, recent lows, and its 50 DMA line) for the first time since February. Stocks tanked on Friday after JP Morgan (JPM) missed gapped down after reporting a lousy Q1. Wells Fargo (WFC) rallied after reporting numbers. The big banks tend to do rather well when stocks advance since a large portion of their bottom line is derived from trading and other related services. The S&P 500 soared 10% in Q1 2013 and was up nearly every week. This year, the first quarter was very choppy at best and the SPX only gained a fraction of 1%. Clearly, making it a “tough” quarter for large banks and other financial services firms (that are typically long-only).

MARKET OUTLOOK: STOCKS Tumble

The action of the past few weeks is not healthy and suggests lower prices will likely follow. Stepping back, the bull market is aging (turned 5 in March) and is likely to get a lot more tricky as we move forward. As always, keep your losses small and never argue with the tape.

 
28 Mar
Daily Market Commentary

Week In Review: SPX 5-Week Flat Base Continues To Form

SPX- 5 week flat base

STOCK MARKET COMMENTARY:
FRIDAY, MARCH 28, 2014

This has been a very “busy” month for stocks as the market digested a slew of negative headlines (Russia, China, Yellen, etc) and a ton of heavy selling in biotechs, momentum, and growth land. Monday is the last trading day of the month and quarter. So far, the S&P 500 (SPX) is up marginally for the year as it remains perched below record highs. If you step back and listen to the market- (chart above) the benchmark S&P 500 is acting perfectly fine as it builds a new 5-week flat base below record highs. It is perfectly normal to see the market “rest” up here as it consolidates last year’s very strong 29% rally. In addition, volume patterns remain healthy on a weekly basis which suggests we are moving higher, not lower from here.

MON-WED’S ACTION: SPX Flirts With 1850 Area

On Monday, the market was dragged lower by growth stocks, with extra emphasis on biotechs (IBB). A slew of growth stocks were smacked causing the Nasdaq composite and Nasdaq 100 to break below their respective 50 DMA lines. Shares of FB, YELP, GOOG, PCLN, NFLX, AMZN, TSLA, JAZZ, CELG, BIIB, to name a few were all hit as investors dumped growth and moved into other areas of the market. The G7 met in The Hague and issued a joint statement, saying they are suspending their participation in the G8 until “Russia changes course.”
Stocks rebounded nicely on Tuesday after the S&P 500 defended the 1850 area (prior chart highs) and consumer confidence hit a six-year high in March. The Conference Board said consumer confidence rose to 82.3 in March. Separately, the latest housing data was mixed. The Commerce Department said new home sales slid -3.3% in February (largely due to the weather) and the S&P/Case-Shiller index said home prices in 20 cities rose 13.2% from January 2013. Federal Reserve Bank of Philadelphia President Charles Plosser told CNBC that Fed members found were surprised by the market’s reaction to recent policy statements, saying they tried to say quite explicitly that the central bank’s view had not changed.
Stocks opened higher on Wednesday after durable goods beat estimates and rose by 2.2%. The beat was largely due to a strong rebound in the transportation sector. Social media giant Facebook (FB) opened lower after announcing a deal to acquire Oculus VR, which makes virtual-reality headsets. Separately, King Digital Entertainment (KING) declined in its first day as a publicly traded company which is known for making the highly popular mobile game “Candy Crush.”

THURS & FRI’S ACTION: Time For A Bounce?

On Thursday, stocks opened lower but closed near their intraday highs as sellers appeared to be exhausted in the near term. Many areas of the market that were getting hit the hardest, positively reversed, and closed higher on the day. Typically, that means a near term bounce is in the cards. Economic data was mixed. The government said, Q4 GDP was revised up to 2.6% in the third estimate from 2.4%. That was inline with the Street, but was down from a +4.1% gain in Q3 2013. The Labor Department said initial jobless claims fell to 311k for the week ending March 22 from an upwardly revised 321k, easily beating estimates for an increase to 330k. Remember, lower jobless claims are actually healthy for the jobs market. Finally, pending home sales slid in February by -0.8%, which was worse than the 0.2% decrease expected on Wall Street. Stocks were quiet on Friday after consumer spending and personal income rose by +0.3% in February.

MARKET OUTLOOK: New 5-Week Flat Base Forms

It has been very impressive to see the major averages hold up as well as they have considering how bad the sell-off has been in the areas mentioned above. Looking forward, the S&P 500 is trading in a new 5-week flat base with support near 1834 and resistance near 1884. Until either level is breached, one should expect the sideways action to continue. As we have said several times in the past, “At this point, more damaging evidence is needed before the bull market breaths its last breathe.”  As always, keep your losses small and never argue with the tape.

14 Feb
Daily Market Commentary

Second Weekly Gain On Wall Street

SPX- OverboughtSTOCK MARKET COMMENTARY:
FRIDAY, February 14, 2014

The market continues acting great considering how weak it was acting at the end of January. The benchmark S&P 500 is 0.6% below its record high which is very impressive. So far, this market continues to support our thesis that this is just another pullback within a broader uptrend. We would like to see the market sit for a while (to consolidate its recent rally off the Feb 5th 1737 low) but would not be surprised if it jumps into new high ground (because no one thinks it will). At its lowest point, the S&P 500 only fell 6.1% from its record high which is a blip on the radar when you step back and look at the bigger picture. The short, intermediate and longer term action still remains very healthy as the market simply paused to digest last year’s very strong gain. Furthermore, the bullish fundamental backdrop is still in place for stocks. The bulls are looking for two possible scenarios to occur: 1. The economy grows organically or 2. The Fed continues (or increases) QE to help the economy grow. Both scenarios are bullish for stocks in the longer term. The biggest concern is what happens when the law of diminishing returns kicks in and all the Fed printing doesn’t help Main St or Wall St anymore? My answer is to align ourselves with what is actually happening (we are in a bull market) and if and when that occurs- we’ll cross that bridge when we get there. Meanwhile, the short, intermediate and long term outlook remains very bullish as the major averages trade at/near new highs.

Monday-Wednesday’s Action: Buyers Are Strong

The major averages cautiously edged higher on Monday as investors waited to hear from the newly elected Fed Chair, Janet Yellen. Shares of Yelp (YELP) surged after the WSJ reported that Yahoo (YHOO) would include Yelp’s ratings of local businesses in its search results. Elsewhere, Mr. Icahn stepped back and publicly said he will not push AAPL to continue its share buyback program after other large investors told him to back off (by not supporting his argument).
Stocks surged on Tuesday after the Yellanator (1st to coin that term- let’s see if it sticks) testified on the Hill. This was Yellen’s first testimony on the Hill as Fed Chair. The best way to summarize her always exciting testimony: Print, Baby, Print. The stock market reacted very well to her comments as she helped allay any concerns that the Fed will turn its back on the economy. In her prepared remarks before the House Financial Services Committee, Yellen stressed continuity in monetary policy and said the recovery in the labor market is far from finished. This helped the tech-heavy Nasdaq turn positive for the year. Stocks were mixed on Wednesday as the major averages paused to digest the recent rally off the Feb 5 (1737) low. Procter & Gamble (PG) lowered their earnings outlook which put pressure on the DJIA.

Thursday & Friday’s Action: Stocks Edge Higher

Stocks rallied on Thursday after the S&P 500 bounced almost perfectly off its 50 DMA line (very healthy). The Labor Department said weekly jobless claims rose by 8k to 339k, topping estimates for 300k. Separately, the Commerce Department said retail sales slid -0.4% in January from December, missing expectations for an unchanged reading.  Stocks rallied on Friday after the Eurozone economy grew and beat estimates. This bodes well for the global economy. In the U.S., consumer sentiment was unchanged in February at 81.2, beating the 80.6 estimate.

MARKET OUTLOOK: Uptrend Defended

The market is following our script perfectly. This turned into another normal and healthy shallow pullback within a broader uptrend.  As always, keep your losses small and never argue with the tape.

07 Feb
Daily Market Commentary

Powerful "UP" Week On Wall Street

SPX- sloppy double bottom 50 dma 2.10.14STOCK MARKET COMMENTARY:
FRIDAY, February 07, 2013

In the short term, the buyers are back in control after what appears to be another shallow pullback in size (% decline) and scope (weeks, not months). The major averages positively reversed for the week (opened lower and closed higher) which is typically a bullish sign. For weeks- we have written, “In the short term, the market is clearly extended and due for another short term shallow pullback.” That is exactly what happened. From our point of view, the intermediate and longer term action still remains very healthy. Furthermore, the bullish fundamental backdrop is still in place for stocks. The bulls are looking for two possible scenarios to occur: 1. The economy grows organically or 2. The Fed continues (or increases) QE to help the economy grow. Both scenarios are bullish for stocks in the longer term. The biggest concern is what happens when the law of diminishing returns kicks in and all the Fed printing doesn’t help Main St or Wall St anymore? My answer is to align ourselves with what is actually happening and if and when that occurs- we’ll cross that bridge when we get there. Meanwhile, the intermediate and long term outlook remain very bullish as the major averages.

MONDAY-WEDNESDAY’S ACTION: Buyers Regain Control

The market fell hard on Monday sending the major averages below critical levels of support after a key US manufacturing report missed estimates. The benchmark S&P 500 broke below support 1767 (which has been support since December). In addition, the Dow Jones Industrial Average broke support and also broke below its 200 DMA line. Since September 2012 (when Q3 began), there has been a very strong correlation between the U.S. stock market and Japan’s stock market. The primary reason is because the U.S. & Japanese Central Banks are the two most aggressive central banks (i.e. printing the most money) in the developed world. Earlier today, the Nikkei fell 10% from its 2013 high and is now officially in “correction” territory, even as Japan’s central bank continues to print billions of dollars everyday. Keep in mind a 10% decline in the S&P 500 would be 1665.
Stocks bounced on Tuesday after economic data stabilized. Factory orders slid by -1.5%, beating estimates for a decline of -1.8%.  Retailer Michael Kors (KORS) experienced a huge break-away gap after reporting earnings. Wednesday marked a near term low for stocks as buyers showed up, defended the 150 DMA line (~30 WMA) and regained control of this market. The market tried to hit a new low but buyers quickly showed up and quelled the bearish pressure which set the stage for a strong rally over the next few days. Stocks were quiet after the latest round of economic data was released. Before the open, ADP, the country’s largest private payrolls company, said US employers added 175k jobs in January which just missed estimates of 180k. Separately, the ISM service index came in at 54.0 in January, beating estimates.

THURSDAY & FRIDAY’S ACTION: Stocks Rally After Jobs Report

Stocks rallied sharply on Thursday and Friday as fear eased about a global slowdown. On Thursday, briefing reported that: “Yen weakness also factored into the advance as the retreat of the Japanese currency calmed fears about some participants being forced out of yen-based carry trades due to strength in the funding currency. The dollar/yen pair ended the New York session right above 102.00 after starting the day near 101.20.” Before Friday’s open, the Labor Department said US employers added 113k jobs in January, missing estimates of 185k. Meanwhile, the unemployment rate slid to 6.6%, beating estimates for 6.7%.

MARKET OUTLOOK: Uptrend Defended

So far this appears to be another normal shallow pullback within a broader uptrend.  As always, keep your losses small and never argue with the tape.

 
10 Jan
Daily Market Commentary

Quiet Week On Wall Street

SPX - Bullish 3 Weeks tight pattern forming 1.13.14STOCK MARKET COMMENTARY:
FRIDAY, JANUARY 10, 2013

The S&P 500 ended the week a few points higher as it continues consolidating its very strong year-end rally. The market still looks very strong and a pullback of some sort would be welcomed at some point. Remember the bullish fundamental backdrop is still in place for stocks. There are two possible scenarios: 1. The economy grows organically or 2. The Fed increases QE to help the economy grow. Both scenarios are bullish for stocks in the near term. The biggest concern is what happens when the law of diminishing returns kicks in and all the Fed printing doesn’t help Main St or Wall St? We’ll cross that bridge when we get there. Right now, Main St and Wall St are responding very well to QE. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold. In the short term, the market is clearly extended and due for a another short term shallow pullback. Meanwhile, the intermediate and long term outlook remain very bullish as the major averages and a slew of leading stocks continue to act very well.

MONDAY-WEDNESDAY’S ACTION: Soft Open For 2014

Stocks ended lower on Monday causing the S&P 500 to experience its third consecutive down day. So far, the S&P 500 has yet to have a winning day in 2014. Each year, people love focusing on January for some correlation to how the overall market will perform for the rest of the year. Statistically the correlation is very low at best. Economic data was thin, the ISM non-manufacturing index for December slid to 53.0 from 53.9, missing estimates for 54.6 while durable goods rose by +3.4%.
Stocks rose for the first time in 2014 on Tuesday and snapped a three day losing streak as investors digested the latest round of economic data and waited for earnings season to begin. The November trade deficit narrowed to $34.3 billion from a downwardly revised $39.30 billion (from $40.60 billion). Many analysts were expecting the deficit to come in at $40.40 billion. Economists believe that the lower trade deficit in November and October will help Q4 GDP. Elsewhere, the Senate approved Janet Yellen’s nomination to lead the Federal Reserve with a 56 to 26 vote. Stocks were quiet on Wednesday after the ADP said private sector employment rose to 238k last month, beating estimates for 203k. Later that day, the December FOMC minutes showed that some officials saw “waning benefits” from monthly bond purchases. The minutes also showed that some members wanted to see QE end sooner rather than later.

THURSDAY & FRIDAY’S ACTION: Dec Jobs Report Disappoints

Stocks were quiet on Thursday as everyone waited for Friday’s jobs report. Before Thursday’s open, the Labor Department said weekly jobless claims slid to 330k from an upwardly revised 345k (from 339k). The Street was expecting a reading of 338k. Before Friday’s open, the Labor Department said US employers only added 74k new jobs in December which missed estimates for around 200k. The unemployment rate slid to 6.7% due to a large chunk of workers giving up (participation rate). A separate report showed that the real unemployment rate, without any special adjustments, would be 13.1%.

MARKET OUTLOOK: BULLS ARE IN CONTROL

As we have been saying all year, the market is very strong in all three time-frames: short, intermediate, and long. The last pullback was shallow in size (%decline) and scope (days/weeks, not months). As always, keep your losses small and never argue with the tape.

12 Oct
Daily Market Commentary

Stocks Positively Reverse & Close Above Resistance

SPX- Stocks break above short downward trendline in strong uptrend 10.14.13STOCK MARKET COMMENTARY:
Friday, October 12, 2013

The market positively reversed last week (opened lower and closed higher) after investors believed that a deal would get done in DC. So far this appears to be just another shallow pullback in size (% decline) and scope (weeks, not months). The primary catalyst behind this 4.5 year bull market remains easy money from global central banks. We now know that the easy money is here to stay (for now). Eventually the music will end, but as a market practitioner, our only job is to align ourselves with what is actually happening, not what someone thinks will happen. That said, weakness should be bought until intermediate and longer-term technical levels are broken. The market remains very news-driven which is an unfortunate reality right now.

MONDAY-WEDNESDAY’S ACTION: Gov’t Shutdown Drags On

Stocks fell on Monday after both sides of the isle made it clear on the Sunday talk shows that they still were not ready to make a deal. Republican House Speaker John Boehner made it clear that he did not have a majority to pass a bill to raise the $16.7 trillion borrowing limit without spending cut conditions attached. Speaking to ABC television over the weekend, he said the U.S. was on the path to a credit default. If the US defaults, this will be the first default in history. The latest projections show that for Q3, S&P 500 earnings are expected to grow by +3.12% vs the same Q in 2012.
Stocks fell hard on Tuesday as the nonsense in DC continued. A notable difference on Tuesday was that a slew of leading stocks got smacked. Up until Tuesday, the leaders acted very well while the rest of the market was under pressure. It will be very interesting to see how this plays out. Obama held a press conference and, as expected, blamed the GOP for not doing their job. Separately, Treasury Secretary Jack Lew said that the country may run out of money sooner than people expect which hurt confidence.
Stocks positively reversed on Wednesday (opened lower but closed higher), helping the market bounce from deeply oversold levels. Obama officially nominated Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke as the chairman of the Fed.  Yellen is believed to be more dovish on monetary policy than Bernanke (hard to believe, we know) which makes fans of QE very happy. The minutes from the Fed’s September meeting were released and showed the decision not to taper was a “relatively close call.” Obama made plans to talk with Republican lawmakers to help resolve the budget deadlock.

THURSDAY & FRIDAY’S ACTION:  Stocks Bounce

Stocks soared on Thursday after the ice broke between the Dems and the GOP. Investors quickly became optimistic that a deal would get done to end the budget gridlock.  House Speaker John Boehner said the GOP would offer a temporary increase in the debt ceiling in return for discussions with the Dems on other budget and deficit issues. The Obama administration said they are willing to look at the proposal to extend the debt ceiling but insist that lawmakers must end the government shutdown as well. The Dow soared 320 points on the news.

MARKET OUTLOOK: SPX Jumps Above Resistance

The market is bouncing after yet another relatively short pullback. Remember, we focus more on how stocks react to the news than the news itself. We will see what happens in D.C. and then look forward to earnings season. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.

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04 Oct
Daily Market Commentary

Week In Review: Stocks Fall 1st Week of October

SPX- Closes On Resistance of Triangle Pattern 10.7.13STOCK MARKET COMMENTARY:
FRIDAY, October 04, 2013

The market fell last week but closed in the upper half of its range after the US government shutdown for the first time since 1996! The S&P 500 is fighting to stay above its respective 50 dma line but the DJIA broke below it. The Nasdaq Composite and the Small and Mid cap indices continue to outperform as they remain perched near their 2013 highs. So far this appears to be just another shallow pullback in size (% decline) and scope (weeks, not months). The primary catalyst behind this 4.5 year bull market remains easy money from global central banks. We now know that the easy money is here to stay (for now). Eventually the music will end, but as a market practitioner, our only job is to align ourselves with what is actually happening, not what someone thinks will happen. That said, weakness should be bought until intermediate and longer-term technical levels are broken. The market remains very news-driven and the latest headlines remain the always exciting drama in D.C. It is unfortunate that the US economy has to suffer while both sides of the aisle continue to embarrass themselves…again.

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MONDAY-WEDNESDAY’S ACTION: Gov’t Shutsdown

Stocks fell on Monday after it became clear that the government would be forced to shutdown at midnight. As expected, the geniuses in DC failed to reach a deal and the government shut down for first time since 1996. For the month, the Dow rallied 2.16 percent, the S&P 500 jumped 2.97 percent, and the Nasdaq soared 5.06 percent. For the third quarter, the Dow rose 1.48 percent, the S&P rallied 4.69 percent, and the Nasdaq vaulted 10.82 percent. Economic data was mixed. In the US, the ISM Chicago PMI rose to 55.7, topping estimates for 53. Overseas, China said its HSBC PMI fell to 50.2, significantly below the flash estimate for 51.2.
Stocks rallied on Tuesday helped by upbeat manufacturing data as investors looked past the first partial government shutdown since 1996. The White House ordered federal departments to execute shutdown plans, leaving 800k people without work or pay until a deal is reached. The ISM manufacturing index jumped to the highest level in 2.5 years, easily beating estimates. Auto sales in the US remained healthy in Q3 which bodes well for the economy. Construction spending was delayed because of the government shutdown. Meanwhile, billionaire investor Carl Icahn met with Apple’s CEO and pushed hard for a $150 billion buyback. They are scheduled to meet again in a few weeks.
Stocks fell on Wednesday as the VIX continued to ramp higher. The VIX is largely considered a fear index and rises when stocks fall or when fear is elevated. ADP said private employers added 166k new jobs last month, missing estimates for 180k new jobs. Earnings season is just around the corner. According to Reuters, companies issuing negative outlooks for Q3 outnumber positive ones by 5.2-to-1. This is the largest negative reading since the 6.3-to-1 ratio in the second quarter. The ECB held rates steady and Mario Draghi said, “We view this recovery as weak, as fragile, as uneven,” He also reiterated his previous commitment to keeping rates at present or lower levels for an extended period of time.

THURSDAY & FRIDAY’S ACTION:  Gov’t Is Closed

Stocks fell hard on Thursday after gunshots were fired outside the Capitol building and the government remained shutdown for the third day. The DJIA fell 180 points after Obama said he will not meet Republican demands in exchange for operating the government. After those comments, the President met with Congressional leaders but failed to resolve the budget deadlock. The Treasury said the US will exhaust its borrowing limit on October 17 unless Congress votes to raise the debt ceiling. If the US defaults, it will be the first default in US history! Weekly jobless claims rose by 1k to a seasonally adjusted 308k which missed estimates for 314k. Separately, growth in the service sector eased in September compared to August’s level. The ISM service index slid to 54.4, missing estimates for 57. Stocks were quiet on Friday as the world waited for a deal in DC. October’s jobs report was postponed because of the shutdown.

MARKET OUTLOOK: SPX Defends 50 DMA Line

The market is pulling back and it will be important to see if the bulls can quell the bear’s efforts. Remember, we focus more on how stocks react to the news than the news itself. We will see what happens in D.C. and then look forward to earnings season. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.

06 Sep
Daily Market Commentary

Week In Review: S&P 500 Forming Bullish Double Bottom Pattern; Leaders Are Strong

SPX -9.9.13 Forming Bullish Double Bottom Pattern

STOCK MARKET COMMENTARY:
FRIDAY, September 06, 2013

 

Stocks have been under pressure (pulling back) since early August as a slew of external “fears” continue to plague Wall Street. Here are some of the “fears:” Attack on Syria (will it esclate?), Fed Taper, Lackluster earnings growth, Debt limit, & higher energy prices, to name a few. We are watching very closely further deterioration because so far the first 8 months of 2013 are eerily similar to 1987.

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1987 VS 2013: A QUICK LOOK

It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness.

MONDAY-WEDNESDAY’S ACTION: STOCKS BOUNCE FROM OVERSOLD LEVELS

On Monday, stock futures jumped over 100pts as the stock market was closed in observance of Labor Day. The big move came after Obama turned to Congress for approval before striking Syria. The “delay” was seen as a net positive for stocks. On Tuesday, stocks edged higher but closed well off their intra-day high as the Syria drama continued to unfold. Comments from House Speaker John Boehner and Majority Leader Eric Cantor served as a reminder that the option for a military strike in Syria remains on the table. Both Speaker Boehner and Mr. Cantor said they support the president’s “call to action” with U.S. Congress scheduled to debate the issue next week, when they return from vacation. Economic data was mostly positive after a slew of stronger-than-expected manufacturing data was announced across the globe. In the US, the ISM Manufacturing index jumped to 55.7 in August which was the fastest pace in over 2 years. Chinese manufacturing hit a four month high, also beating estimates. Separately, Euro-Zone factory activity beat estimates and rose at its fastest pace since May 2011. Elsewhere, the Commerce Department said construction spending in the US rose 0.6% to an annual rate of $901 billion which beat the Street’s estimate for a gain of 0.3%.

Stocks rallied on Wednesday, helping the DJIA enjoy its largest gain in over a month (up 100). The US Senate foreign relations panel passed authorization for use of military force in Syria. Economic data was mostly positive. The US trade deficit rose to 13.3% to $39.1 billion in July which topped estimates for $38.7 billion. Weekly mortgage applications rose for the first time in four weeks as rates slid from their highest level in the past year. Auto sales surged in the US to their highest level since the financial crisis began in 2008. Finally, the Fed’s Beige Book, which measures economic activity across the country, said the economy expanded at a “modest to moderate” pace in most of the country between July and late August.

SPX- 9.9.13- Large Triangle Pattern- next move winsTHURSDAY & FRIDAY’S ACTION: Stocks Bounce; 50 DMA Is Resistance

Stocks were quiet on Thursday as investors digested a slew of data. The Bank of Japan, European Central Bank (ECB) and the Bank of England (BOE), all held rates steady and reaffirmed their “easy-money” stance. Rates soared as markets are now looking forward and know an end is in sight for ultra easy money policies from global central banks. In the US, weekly jobless claims slid to a five-year low, falling 9k to a seasonally adjusted 323k and beat estimates for 330k. Meanwhile, ADP said private employers added 176k new jobs in August, just missing estimates for a gain of 180k. The ISM service index surged to the highest level since before the financial crisis. Before Friday’s open, the Labor Department said US employers added 169k new jobs last month, missing estimates for a gain of 175k. Meanwhile, the unemployment rate slid to 7.3%.  The G20 failed to produce anything more than just the usual rhetoric, with each side speaking to their constituents.

MARKET OUTLOOK: 50 DMA Line Is Resistance

The market still has some issues as the DJIA & SPX are now “living” below their respective 50 DMA lines. Defensive is paramount until the major averages trade, close, and stay above their respective 50 dma lines. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.
 

04 Jan
Daily Market Commentary

Stocks Soar On Fiscal Cliff Deal But Close Below 2012's High

Eventually, we are heading higher.

Eventually, we are heading higher.

Friday, January 04, 2012
Stock Market Commentary:

Stocks are back in a confirmed uptrend after congress finally managed to put the best interest of the country ahead of their petty bickering. Stocks soared and closed above all near term levels of resistance that have been outlined here several times in this report (50 DMA line, downward trendline, neckline of the bullish inverse head and shoulders base, and 1448- December’s high). The next level of resistance for the major averages is 2012’s high (1474 in the S&P 500). Meanwhile, the next level of support is 1401 and then 1343. The uptrend that began on Friday, November 16, 2012- after politicians hinted that a deal would get done for the fiscal cliff remains intact and offers an interesting lesson for investors- stocks are closely paying attention to government officials (Summer rally was sparked after Draghi said he will do whatever it takes to save the Euro). It will be very interesting to see if the S&P 500 can breakout above its 2012 high (1474) or pullback to consolidate its recent gain.

Monday-Wednesday’s Action: Stocks Soar After The Country Doesn’t Go Off The Fiscal Cliff

Stocks moved higher on Monday after the bulls showed up and defended the 50 and 200 DMA lines in the S&P 500 and DJIA. Investors sent stocks higher after VP Biden got involved and brokered a last minute deal with Senate leaders to avoid the US from going over the fiscal cliff. Now that we are in an “aging” bull market the type of stocks that show up and “lead” the market higher are more value oriented and less growth. Please keep that in mind as you look for leading stocks ahead the bull market’s 4th birthday (March 2013).  Stocks were closed on Tuesday in observance of the New Year Holiday.
On Tuesday, stocks soared after a deal was announced regarding the Fiscal Cliff. Yes, both sides had to compromise and the deal was not ideal but that doesn’t matter. What matters is that investors are happy with the deal and that stocks soared on the news. From my point of view, everything outside the price action of the major averages and leading stocks is noise and the market is acting just fine right now. Especially, because there are so many bears out there and so many typical CANSLIM/growth investors are getting killed and have missed this rally- shocker, I know. That is one reason why I take a balanced approach between both growth and value investing. I was happy to see the S&P 500 break and close above 1448 which was last month’s high. Looking forward, the next level to watch is 1474 (2012’s high). Until either level breaks I’d have to expect this range bound action to continue. If we breakout above resistance-we are likely headed higher. Conversely, if we break down below support – we are likely headed lower. Meanwhile, our stocks are working marvelously right now so as Livermore would say, our job is to “sit.”

Thursday & Friday’s Action: Stocks Digest Earlier Gains

Stocks ended lower on Thursday as they digested Wednesday’s large move. The Fed released the minutes of their last meeting which suggested the Fed may end their stimulus sooner than expected. This sent the US dollar soaring and precious metals plunging. Economic data on Thursday was mixed to slightly higher. The ADP National Employment Report said that US employers added 215K new jobs in December which topped the Street’s expectation for a gain of 140K. Weekly initial jobless claims totaled 372K, which missed the Street’s expectation for 365K. The weekly MBA Mortgage Applications fell by -10.4%, which follows last week’s decline of -11.2%. Finally, December Challenger Job Cuts slid by -22.1% which followed the prior month’s reading for an increase of +34.4%. Before Friday’s open, the Labor Department said U.S. employers added 155K new jobs in December as the unemployment remained steady at 7.8%, which is above the Fed’s 6.5% target.

Market Outlook: Uptrend

From our perspective, the market is back in an uptrend which bodes well for the market and the economy, by extension. As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we put out a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce.” Stay tuned as we will continue to keep you one step ahead of the crowd. As always, keep your losses small and never argue with the tape.

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