Stocks Snap A Very Strong 5-Week Win Streak

Stocks fell in the first week of September, causing the benchmark S&P 500 (SPX) to snap a 5-week win streak. During that very strong 5-week win streak, the SPX rallied from 1904 to 2011, or 107 points (or +5.6%).  That is a large move by any normal definition. Remember in bull markets, surprises are to the upside. It is important to put that move in the proper perspective, in normal times (when Central Banks are not printing billions of dollars everyday to stimulate both Main St & Wall St), a 10% rally over an entire year is considered normal/healthy. So a +5.6% rally in a few weeks is clearly a very strong event. At this point, it is healthy to see the market consolidate that move before moving higher. Remember, there are two ways a market can consolidate a big move – either move down or sideways. So far the action remains very healthy and, barring some unforeseen large negative event, the bulls remain in clear control of this market. Weakness should be bought until further notice.

Monday-Wed’s Action: Stocks Pullback

Stocks ended mixed on Monday after the EU announced new sanctions on Russia. The Federal Reserve released a report which showed that U.S. consumers increased their credit -a.k.a. borrowed more money- led by car loans and higher credit card balances. In separate news, the Euro fell and the U.S. dollar continued to advance. On Tuesday, stocks in the U.S. fell as the world watched Apple Inc (AAPL) unveil a new round of cool toys. Apple announced a new iPhone which is larger and faster than previous models, a new Pay system and a new Watch. The new Apple Watch will be available in 2015. Stocks rallied on Wednesday after news spread that Scotland may not choose to leave the U.K. AAPL rallied one day after their latest product announcement. The big news outside of stocks was a sharp decline in energy prices. Crude oil and RBOB Gasoline futures continued their two month decline and hit new multi-year lows. Remember energy prices serve as an indirect tax on both businesses and consumers, so lower energy prices tends to be bullish for the economy. After Wednesday’s close, President Obama addressed the world and said he will go on a military offensive to degrade and then destroy the new maggot terrorist group that has emerged in the Middle East.

Thurs & Fri’s Action: Resistance Becomes Support

Stocks ended mixed on Thursday as the world paused to remember the tragic events of 9/11/01. The Labor Department said weekly jobless claims rose to 315k- missing estimates for a decline to 300k. A separate report showed that the Treasury Budget for August showed a deficit of $128.70 billion, which followed the prior deficit of $147.90 billion and missed estimates for $129.00 billion. Stock slid on Friday as investors waited for next week’s Fed meeting.

Market Outlook: Healthy Action Continues

The two best words to describe this market are “melt up.” Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007) but until we see signs of sustained distribution (heavy selling) the market deserves the bullish benefit of the doubt. Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which is longer than most historical comparisons and illustrates how strong this bull market is. As always, keep your losses small and never argue with the tape.

Here are the latest 4 pullbacks and subsequent rallies in the S&P 500