The SPX and DJIA snapped their 8-week win streak but ended in the upper half of the range (which is a healthy sign). As we have mentioned several times recently, in the short-term the market is extended and a light volume pullback would do wonders to restore the health of this rally. We wrote last week that “The market negatively reversed (opened higher and closer) on Friday which could signal the start of a short term pullback.” which is exactly what happened. So far, these pullbacks are lasting a matter of days, not weeks or months- which illustrates how strong the bulls are right now. The intermediate and long term outlook remain very bullish as the major averages and a slew of leading stocks continue to act very well. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold. Every pullback this year has been shallow in both size (% decline) and scope (weeks, not months). The primary catalyst behind this 4.5 year bull market remains easy money from global central banks. We know that the easy money is here to stay (for now). Therefore, barring some unforeseen massive decline, this bull market is alive a well. Eventually the music will end, but as a market practitioner, our only job is to align ourselves with what is actually happening, not what someone thinks will happen. Trade accordingly.
MONDAY-WEDNESDAY’S ACTION: Stocks Slide On Taper Woes
Stocks fell on Monday after the latest data showed Black-Friday traffic rose, but actual sales fell. Over the weekend, Jeff Bezos, founder of Amazon.com (AMZN), said the company is testing a new same-day delivery system via drones. UPS followed on Tuesday and said they are testing a similar strategy. The ISM manufacturing index rose to 57.3 in November which easily beat estimates for 55.
Stocks fell on Tuesday for the third straight day but curbed their loses towards the close. Tesla Motors (TSLA) surged 16% after ta German probe into recent fires involving its Model S sedan did not show any manufacturer-related defects and Morgan Stanley (MS) said TSLA is their top choice in the American auto sector. Shares of Apple, Inc. (AAPL) soared after China Mobile (CHL) said it began taking pre-orders for the iPhone. Until now, China Mobile has not officially sold the iPhone and they are rumored to have over 200 million subscribers- or nearly the size of the entire US adult population. This obviously could be huge new market for AAPL.
The SPX and DJIA fell for the fourth straight day but ended off their intra-day lows as investors digested a slew of economic data. Before the open, ADP, the country’s largest private payrolls company, said US employers added 215k new jobs last month, topping estimates for a gain of 173k. Separately, the US trade deficit narrowed to $40.6 billion in October vis expectations of $40B. The Commerce Department said new homes ales soared 25.4% in October which was the highest level in years. The ISM service index slid to 53.9 in November from 55.4 in October. Finally, the Fed’s Beige Book, which measure economic activity around the country, found expansion in the manufacturing and housing sectors, but hiring was modestly up or little changed.
THURSDAY & FRIDAY’S ACTION: Jobs Report Sparks – Strong Rally
Stocks slid for a fifth straight day on Thursday as fear spread that the Fed will taper sooner than initially expected. Investors digested a slew of economic data which on average topped estimates. GDP rose by +3.6% last quarter which easily topped the Street’s estimate for a gain of +2.8%. Separately, the Labor Department said weekly unemployment claims fell by 23k to 298k last week. Separately, U.S. factory orders fell -0.9% in October. GDP and weekly jobless claims below 300k were the two big headlines for the day. Stocks surged on Friday after the always fun jobs report was released. Before Friday’s open, the Labor Department said employers added 203k new jobs in November while the unemployment rate slid to 7%, matching the Fed’s target. Stocks opened sharply higher on the news because the report was not strong enough for the Fed to decisively taper in December. Separately, inflation, the Fed’s second target, remains way below 2% which is why we do not think the Fed will taper 1 week before Christmas.
MARKET OUTLOOK: Bulls Continue To Fight
The market is very strong and, in the short-term, remains very extended. The market will pullback and it is just a matter of when, not if. As always, keep your losses small and never argue with the tape.