Stock Market Week & Month In Review: Stocks Surge In February

SPX - 2.28.14 Head & Shoulders Head & Shoulders Continuation Pattern

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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.

Adam Sarhan Reuters Quote: GLOBAL MARKETS-Yellen helps offset Ukraine worry; S&P 500 hits record

ReutersS&P 500 closes at record high
* Russian ruble hits 5-year low vs dollar
* Euro bounces off 2-week low
* U.S. Treasuries’ yields at two-week low
Thu Feb 27, 2014 4:42pm EST
By Chuck Mikolajczak
NEW YORK, Feb 27 (Reuters) – Stocks on world markets mostly advanced on Thursday, while the S&P 500 closed at a record high, as comments from U.S. Federal Reserve Chair Janet Yellen offset concerns over tension in Ukraine and Russia.
Yellen signaled the central bank was likely to stay the course in its current plan to scale back its stimulus measures and said unusually harsh winter weather appears to be behind recent signs of weakness in the U.S. economy.
“Yellen came in and did exactly what she was supposed to do, and said, ‘Listen, the weather is still a variable.’ But she made it clear the Fed is ready to stand up and do what’s necessary to continue to support the economy, and that’s exactly what Wall Street wanted to hear,” said Adam Sarhan, chief executive officer of Sarhan Capital in New York.
But gains were held in check as a result of tensions in Ukraine, as armed men seized the parliament in Ukraine’s Crimea region and raised the Russian flag, alarming Kiev’s new rulers, who urged Moscow not to abuse its navy base rights on the peninsula by moving troops around.
The White House warned Russia to respect Ukraine’s sovereignty and territorial integrity and told Moscow to avoid “provocative” actions with regard to the crisis-hit country.
The Russian ruble touched a five-year low against the dollar , while Ukraine’s hryvnia fell to a record low after its central bank abandoned its managed exchange rate policy.
The geopolitical uncertainty caused investors to seek the safety of U.S. Treasuries, driving yields to two-week lows. The yield on the 10-year note was 2.646 percent.
The Japanese yen and Swiss franc, both traditional safe-haven plays in foreign exchange, gained.
“There are definitely fears about geopolitics; the general mood toward emerging marketsis not great. The concern is this could develop into a proper civil war in Ukraine that splits the country,” said Manik Narain, strategist at UBS in London.
On Wall Street the S&P 500 advanced to close at a record high of 1,854.31, breaking its prior high set Jan. 15, after Yellen’s comments and an unexpected rise in durable goods orders, excluding transportation. The index had been unable to hold above the record despite several attempts this week.
If the view holds that harsh winter weather is to blame for a recent slowing in economic growth, investors are likely to expect the Fed to keep trimming its bond-buying program by $10 billion at each policy meeting, leaving it on track to end the purchases completely by the end of the year.
The Dow Jones industrial average rose 74.3 points or 0.46 percent, to 16,272.71, the S&P 500 gained 9.15 points or 0.5 percent, to 1,854.31 and the Nasdaq Composite added 26.869 points or 0.63 percent, to 4,318.933.
The MSCI world equity index, which tracks shares in 45 nations, gained 1.30 points, or 0.32 percent, to 408.67.
Yellen’s testimony curbed declines in Europe, with the FTSEurofirst 300 index, closing down 0.2 percent after an earlier fall of 1 percent, and the euro gained 0.2 percent to $1.371 after it dropped to a two-week low of $1.3641.
Aside from tensions in Ukraine, declines in Europe were stemmed by a downward revision to Spain’s fourth-quarter gross domestic product and ECB data that showed little improvement in the amount of credit reaching euro-zone firms.
German inflation figures suggested there would be scant pick-up in euro-zone inflation, due on Friday.
The ECB meets next week and is under pressure to cut interest rates again and dip back into its unconventional policy cupboard to ensure the euro zone does not become mired in deflation.
In bond markets, the possibility that more moves are coming from the ECB and a strong debt auction in Italy helped lower-rated Italian and Spanish debt keep pace with safe-haven German Bunds.
Copper touched a three-month low below $7,000 a tonne, extending its losses over the past week on recent concerns about slower growth in China, before rebounding to $7,025 a tonne.
Gold prices were flat as spot gold edged down 1 cent to $1,330.69 an ounce, well off a high of $1,345.35 hit earlier in the session, while U.S. COMEX gold futures for April delivery settled up $3.80 at $1,331.80 an ounce.
Brent crude fell 56 cents to settle at $108.96 a barrel and U.S. oil settled 19 cents lower to $102.40 a barrel as the civil unrest in Ukraine curbed overall risk appetite and fueled fears that it would slow growth in Europe and lessen oil demand.

Adam Sarhan Reuters Quote: US STOCKS-Wall St gains after Yellen remarks, retailers jump

Reuters
 
 
Thu Feb 27, 2014 2:23pm EST
*Yellen says some data weak, weather impact uncertain
* J.C. Penney, Best Buy shares rally after results
Dow up 0.5 pct; S&P 500 up 0.5 pct; Nasdaq up 0.7 pct
By Caroline Valetkevitch
NEW YORK, Feb 27 (Reuters) – U.S. stocks rose on Thursday after comments from Federal Reserve Chair Janet Yellen offered some relief to investors worried about the central bank’s tapering of economic stimulus.
Tech shares, including Apple Inc, helped lead the advance, which pushed the S&P 500 above the 2013 year-end closing level and within points of surpassing Monday’s intraday record high. The gains lifted the benchmark index into positive territory for the year.
Addressing the Senate Banking Committee, Yellen said the Fed would be on alert to make sure that recent signs of economic weakness are due to cold weather and storms, rather than a more fundamental slowdown.
“Yellen came in and did exactly what she was supposed to do, and said, ‘Listen, the weather is still a variable.’ But she made it clear the Fed is ready to stand up and do what’s necessary to continue to support the economy, and that’s exactly what Wall Street wanted to hear,” said Adam Sarhan, chief executive officer of Sarhan Capital in New York.
The theory that some recent lackluster data was due to the weather rather than worsening fundamentals had helped investors shrug off the recent weak economic numbers.
Retailers ranked among the top gainers for a third session, with the shares of both J.C. Penney Co Inc and Best Buy Co Inc jumping after the companies posted strong results. Late Wednesday, J.C. Penney forecast more improvement in its comparable sales and gross profit margin this fiscal year. On Thursday, Best Buy reported adjusted earningsthat topped forecasts.
The Dow Jones industrial average rose 74.33 points or 0.46 percent, to 16,272.74. The S&P 500 gained 8.64 points or 0.47 percent, to 1,853.80. The Nasdaq Composite added 29.969 points or 0.7 percent, to 4,322.033.
J.C. Penney shares surged 25.5 percent to $7.48 while Best Buy advanced 0.9 percent to $26.06. The S&P retail index was up 0.2 percent, adding to recent strong gains.
Among other big gainers, shares of Mylan Inc rose 10.1 percent to $56.59 after the U.S. generic drugmaker gave a 2014 forecast above Wall Street’s estimates and said it plans to make a “substantial” transaction this year that would add to future earnings.
 
Source: http://www.reuters.com/article/2014/02/27/markets-usa-stocks-idUSL1N0LW25G20140227

S&P 500 About To Breakout Of A Bullish Head & Shoulders Bottom

The S&P 500 is trading near its record high and is about to breakout from a short/bullish inverse head and shoulders bottom pattern. Keep in mind that from Feb’s low to Feb’s high, the $SPX has rallied a very impressive 7%, which is not an insignificant sum. In the old (non QE) days, a 10% annual advance was considered healthy. So 7% in less than a month is very strong and clearly illustrates how strong the bulls are right now. As previously mentioned, the bulls want to see the SPX close above 1850 and the bears don’t. Pending any major sell-off, the bulls are clearly in control at this juncture.  The week and month end tomorrow so we’ll see where we close.

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SPX- Neckline

Simple Case For Higher Stock Prices 02.25.14

SPX- 1850

Largest Economy In History & VALUATIONS Are Attractive

The market continues acting great considering how weak it was acting just a few weeks ago. The benchmark S&P 500 jumped to a fresh record high on Monday which is very healthy. Late last week, the Nasdaq Composite, Nasdaq 100, Philly Semiconductor index ($SOX), and Mid Cap indices ($MDY) all hit fresh 2014 highs which further supports the bullish case. During the entire pullback, we repeatedly said, that this appears to be another shallow pullback in size (% decline) and scope (weeks, not months) within a broader uptrend.

The Economy Is At Record Highs- & Growing

In the middle of February, Barron’s lead article suggested 4% GDP growth for 2014. If that occurs, it would justify higher prices for stocks (that is a big “IF”). Even if it is less than 4%, valuations are still not horribly extended when compared to prior significant market tops and the US economy is the largest it has ever been in history and is growing (albeit at a slightly slower rate than Wall St would like).

Valuations Are Attractive Compared To Prior Market Tops

Right now, the S&P 500′s P/E is just over 17. In 1987, and in 2007, it was near 22. In 2000, it was over 29! Bottom line: valuations are still within reason and are much lower than prior significant market tops. Of course, this secondary as price action always comes first in our book.
Separately, the $SOX (Philly Semiconductor index) broke out of a very long 12 year base on Friday and hit its highest level since 2002! This bodes very well for the broader market and the tech-heavy Nasdaq composite. 

The Only Thing That Matters:

Looking forward, since Friday is the last day of the week and month, the bulls want to see the S&P 500 close above 1850 and the bears want to see it close below 1850. At this point, that is the only thing that matters, everything else is noise.

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Week In Review: SPX Snaps 2 Week Win Streak; Closes Just Below Record High

SPX- Perched Below Resistance 2.24.14STOCK MARKET COMMENTARY:
FRIDAY, FEBRUARY 21, 2014

The market continues acting great considering how weak it was acting just a few weeks ago. The benchmark S&P 500 closed on Friday within a fraction of a percent below its record high (which is very healthy). Meanwhile, it was very healthy to see the Nasdaq, Nasdaq 100, Philly Semiconductor index ($SOX), and Mid Cap indices ($MDY) all hit fresh 2014 highs. So far, the action continues to support our bullish thesis that this was just another pullback within a broader uptrend. The short, intermediate, and longer term action still remain 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. Keep in mind the US economy is the largest it has ever been in history and is still growing (albeit slower than Wall Street wants). 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. Barring some unforeseen negative event, both scenarios are bullish for stocks.

Mon-Wed’s Action: Valuations Still Within Reason

In the US, stocks were closed on Monday in observance of the President’s Day holiday. Over the weekend, the headline/lead story in Barron’s suggested 4% GDP growth for 2014. If that occurs, it would justify higher prices for stocks (that is a big “IF”). Even if it is less than 4%, valuations are still not horribly extended when compared to prior significant market tops. Right now, the S&P 500’s P/E is just over 17. In 1987, and in 2007, it was near 22. In 2000, it was over 29! Bottom line, we are moving in that direction but are not there just yet. Of course, this secondary as price action always comes first in our book.
On Tuesday, stocks opened mixed as traders returned from the long weekend. It is normal to see the market pause for a little to digest its recent (and robust) rally. Since the Feb 5 1737 low, the S&P 500 soared over 6% (>100) points and definitely deserves a breather up here.  Before Tuesday’s open, the Empire State manufacturing report missed estimates. Keep in mind over the next few weeks, we will likely see a flurry of weaker than expected economic data and much of it will be written off due to the weather. On Wednesday, stocks negatively reversed (opened higher but closed lower) as the market digested its latest and steep rally off the lows. Typically, a negative reversal- after an almost vertical rally- would signal a near term decline would follow. The decline lasted 1hr early Wednesday morning before the bulls showed up and quelled the bearish pressure. This illustrates how strong the bulls are right now. The S&P 500 futures were up for 11 days in a row and the $SOX (Philly Semiconductor index) rallied for 10 straight days. Additionally, by Friday’s close, the $SOX broke out of a very long 12 year base and hit its highest level since 2002!

Thurs-Fri’s Action: Stocks Are Strong

Stocks opened lower on Thursday but the bulls quickly showed up and promptly quelled the bearish pressure and sent stocks higher by the close. Shares of Facebook (FB) opened lower after the social media giant said they will acquire WhatsAPP for $19B but closed higher as buyers stepped up and sent prices to fresh record highs. Elsewhere, shares of Tesla (TSLA) soared to a new record high after the company smashed estimates. Stocks fell on Friday as a slew of options expired (caused the heavy volume).

Market Outlook: Uptrend Intact

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.

Guest Posts: Coming to Terms with Reality & China Slowdown

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The swift reversal for US benchmark indices midweek saw the S&P 500 index drop like a stone from within 4-points of setting a fresh record peak. Three weeks ago investors appeared to cross the Rubicon by discounting tepid data as a temporary phenomenon with activity and hiring afflicted by the cruel winter weather. For sure, first quarter growth will suffer but investors appear to be expecting positive payback for the remainder of the year. Indeed JPMorgan’s David Kelly on the back of Thursday’s Financial Times suggests that, barring any fresh financial setback around the world, the Fed’s latest projection for growth and employment may be a good call from the typically over-optimistic central bank.
As much as the weather did impact output and crimp activity, the reality is that the economy is slowly normalizing and that monthly payroll creation above 200,000 is likely to happen this year. That reality of course helps explain the arrival on the scene of discussion, if not contemplation, of a rise in short-term interest rates. Talk of a fed funds rate shift as early as the summer in the January minutes dominated much of the financial media’s headlines Thursday, with some onlookers reminding investors to favor stocks over bonds.
However, getting to the crux of the matter is the simple fact, as illustrated by dovish views in the FOMC minutes, that inflation is very likely to remain contained as far as the eye can see. And while the Fed now has its work cut out for it in safely explaining what conditions would cause it to consider a shift in rates, the framework was written by Yellen in a 2012 speech highlighting various metrics of the labor market that help explain whether its plight is structural or cyclical. Mr. Bernanke went on to use that same framework just months later to highlight Ms. Yellen’s analysis. In addition the Fed must be sensitive in positioning for any change in its fed funds rate on account of fresh financial crises around the world.
WalMart’s lackluster earnings report further dulled investor appetite for stocks, yet once again the reality remains that the US consumer is not shrinking as stock selling might suggest. The very low price model built by WalMart is leading its base to seek out braver pricing at other discounters and the retailer needs to adapt in its own wake.
Likewise, homebuilding companies who recently suffered at the hands of winter disruptions have seen their share prices mark time as investors’ patience wears thin.
Unlikely to go away is investors’ concern over the external environment and what that might mean when central banks are at diverse stages of policy stimulus. Some investors expect the ECB to embark upon further easing next week and just as the Fed has started to reduce its pace. The Bank of Japan extended its asset purchases programs at a larger size starting next month. But it is the Fed’s withdrawal that upsets investors most, particularly in respect to emerging markets.
China’s manufacturing sector saw its pace of expansion slow to its lowest in seven months according to the private HSBC survey released overnight. Meanwhile investors were relieved that the Peoples Bank failed to further drain liquidity as it mulls how to deal with Trust bank failures resulting from over lending.
Coming to terms with reality is a quest for investors at a time when not much has really changed. The domestic economy continues to heal nicely and this year will undoubtedly be better than last. Panic if you must over discussion of a shift in interest rates or use WalMart’s earnings as a barometer for consumer health if you choose. For now US equity investors must do battle with the prospect of changing probabilities of financial tempest in other parts of the globe. In the absence of such problems, the bull is likely to charge unchecked.
Source: AW from IB
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China Slowdown?
China HSBC Manufacturing PMI for February came in below expectations and at levels indicative of contraction. This follows import and export data that was better than expected, but led some analysts to comment that it was possible Chinese companies were over invoicing in order to mask a slowdown. Today’s PMI reading could add credence to the risk of further slowdown in the Chinese economy.
Source: Bloomberg & BDLIVE