Bulls Still In Control
Stocks ended a volatile week relatively unchanged as the bulls showed up on Friday and sent stocks soaring. Remember, we are in a bull market and the fact that stocks refuse to fall (even on bearish news: terror attacks, talk of World War III, lousy economic data, negative Q3 earnings comps, etc) reaffirms the view that weakness should be bought. Remember, it’s not the news that matters but how the market reacts to the news. At this point, the market is still range-bound as the S&P 500 is barely positive for the year. In the short term, support is the 50 DMA line and then Aug’s low while resistance is 2116 and then 2134. Until 1867 (important support) or 2134 (important resistance) is broken, by definition, we have to expect this sloppy/choppy action to continue. 2011 the S&P 500 was “flat” for the entire year and that set the stage for a strong 2012-2015. The big difference between 2015 and 2011 is that we are now 6.75 years into this bull market and in 2011 the bull market was only two years old. So far, all that matters is the free money that is sloshing around the world from global central banks. As long as stocks react well to the Free/Easy money, we do not want to fight this very strong tape.
Monday-Wednesday’s Action: Stocks Trade All Over The Map
On Monday, stocks slid on the last trading day of November. In other news, shares of Staples (SPLS) slid by -2.0% after the New York Post reported the company’s acquisition of Office Depot (ODP) may likely hit a regulatory obstacle. On a separate note, the International Monetary Fund said they will include China’s currency (the yuan) to the special drawing rights basket, meaning five currencies will be represented in the SDR starting October 1, 2016. The move will allow the yuan to make up nearly +11.0% of the SDR, which is a smaller weighting than the currency had been expected to receive. U.S. economic news missed estimates: Chicago PMI came in at 48.7, missing estimates for 54. Pending home sales rose by 0.2%, missing estimates for a gain of 1%. The Dallas Fed Manufacturing survey fell to negative -4.9, which actually beat estimates for a negative -11 but the fact that it is still in negative territory signals contraction. On Tuesday, stocks rallied nicely on the first trading day of December. The PMI manufacturing index came in at 52.8, barely beating estimates by 52.6. The ISM manufacturing index rose to 48.6, missing estimates for 50.5. Construction spending in the US rose 1%, beating estimates for a gain of 0.6%. Stocks fell on Wednesday after ADP, the country’s largest private payrolls company, said US employers added 217k new jobs in November, beating estimates for 183k. Dr. Yellen spoke and made the case for raising rates in December. Separately, the Fed’s Beige Book was released which showed economic activity improved “modestly” across much of the country which will not prevent the Fed from raising rates.
Thursday & Friday’s Action: Stocks Fall Then Rally
Markets traded all over the map on Thursday because investors were disappointed that the European Central Bank (ECB) did not increase QE (print more money). The ECB took rates further into negative territory (to -0.3%, from -0.2%), extended QE from Sep 2016 to March 2017 but did not increase QE from their 60B monthly rate. The last point disappointed investors and sent stocks across the globe sharply lower. The USD plunged and the euro soared on the news. Economic data was not impressive. The ISM Non-Manufacturing Index for November fell to 55.9 from 59.1 while the Briefing.com consensus expected an increase to 58.3. Meanwhile, October Factory Orders rose 1.5% while the Briefing.com consensus expected an increase of 1.1%. Before Friday’s open, the Labor Department said US employers added 211k new jobs, beating estimates for 200k. US stocks rallied on the news which basically gave the Fed the green light to raise rates when they meet on Dec 15-16. On Friday, Mr. Draghi came out and juiced markets when he said “there is no particular limit to how we can deploy any of our tools.” He added the risk of deflation is “firmly off the table.” Stocks extended to gains on the news.
Market Outlook: Aging Bull Market
This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2016. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but for now the bulls remain in control. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market – Join FindLeadingStocks.com.