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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