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STOCK MARKET COMMENTARY:
FRIDAY, FEBRUARY 28, 2014
The benchmark S&P 500 (SPX) jumped to a fresh record high on Friday and broke out of an inverse Head & Shoulders continuation pattern (shown above). This is very healthy action considering how weak it was acting in late January. For the month, the SPX soared +4.3% and a whopping 7.5% from Feb’s low (1737)! For the year, the SPX is now up +0.59%. Remember, in a normal (non QE) world, a 10% move for the entire year would be considered healthy. So +7.5% in less than a month is very impressive and speaks to how strong the bulls are right now. Remember markets do not go straight up so be careful chasing stocks that have already had big moves up here. A better approach that has worked very well for us over the years is to buy weakness in uptrends, not just strength. In the short term, the market is clearly getting extended and a light volume pullback into the 50 dma line would do wonders to shake out the late-longs. Meanwhile, the intermediate and longer term outlook remains very strong.
Mon-Wed’s Action: Stocks Trade Just Below Resistance (1850)
On Monday, the benchmark S&P 500 briefly turned positive for the year when it jumped to a fresh record high before pulling back and closing below 1850 (resistance for 2014). Stocks slid in the afternoon and the SPX closed below 1850 level. M&A news picked up when RF Micro Devices (RFMD) agreed to acquire TriQuint Semiconductor (TQNT) for about $1.6 billion. Men’s Wearhouse (MW) increased its cash tender offer for Jos. A. Bank Clothiers (JOSB). Interestingly, all four stocks gapped up on the news. Elsewhere, shares of Pfizer (PFE) rose after a study involving 85,000 people showed Prevenar 13, the company’s blockbuster vaccine against childhood infections, prevented community-acquired pneumonia in people 65 and older. Shares of Humana (HUM) surged after the health insurer said the government’s proposed cuts to Medicare will be less than expectations. eBay (EBAY) rose after billionaire investor Carl Icahn accused the company of sloppy corporate governance and reiterated his call for the spin-off PayPal. Netflix (NFLX), another Icahn darling, rallied after the company agreed to pay Comcast (CMCSA) for quicker streaming speeds.
Stocks were relatively quiet on Tuesday as investors digested the latest round of economic data. The S&P/Case Shiller composite index of 20 metro areas rose +0.8% on a seasonally adjusted basis. The report showed that US home prices rose at a slower than expected pace in Dec 2013. The S&P/Case-Shiller index of property values in 20 cities rose +13.4% compared to Dec 2012. It was the first deceleration since June 2013. Consumer confidence slid in the US, the conference board said consumer confidence slid to 78.1 in February from 79.4 in January, missing estimates for 80. Stocks were quiet on Wednesday as the market remained perched below the closely watched 1850 level. The market drifted lower in the afternoon but the bulls showed up and impressively sent stocks higher into the close.
Thurs & Fri’s Action: Bulls Send Stocks To New Highs
Stocks rallied on Thursday as investors digested a slew of economic data and the latest chatter from several Fed officials. The SPX closed above 1850 which was very encouraging considering earlier weakness and negative headlines from Russia/Ukraine. Weekly jobless claims rose by 14k to 348k, topping estimates. The Commerce Department said durable goods rose by 1.1% which was the largest increase since May and bodes well for both Main Street and Wall Street. In other news, Janet Yellen testified on Capitol Hill. The new Fed Chair said the weather remains a factor and made it clear that the Fed is ready to step in (if the economy needs more help). This helped allay investor woes that the Fed will leave the economy hanging. Stocks surged on Friday sending the SPX to a fresh record high which paved the way for a very strong week and month.
MARKET OUTLOOK: Strong Uptrend
The market is following our script perfectly. In late Jan/early Feb we wrote saying that this appears to be another normal (and healthy) pullback within a broader uptrend. That is exactly what occurred. As always, keep your losses small and never argue with the tape.