Stocks rallied for the third straight week as the bulls remain in control of this market. In the short-term the market is getting extended and a light volume pullback would do wonders to restore the health of this rally. 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. That said, weakness should be bought until intermediate and longer-term technical levels are broken.

MONDAY-WEDNESDAY’S ACTION: Stocks Extend Gains

Stocks ended mixed on Monday as the world waited for Tuesday’s jobs report to be released. The market traded in a tight range which was healthy after the prior two week’s healthy advance.Most of the economic data that was postponed due to the government shutdown came out in this week. Existing home sales in September slid 1.9% to an annual rate of 5.29 million units which missed the Street’s estimate and was the lowest level in nearly five months.. Underneath the surface the action was healthy as leading stocks continued to hold up rather well. After Monday’s close Netflix (NFLX) surged after smashing estimates. The stock gapped up on Tuesday but quickly fell over $50 in the first hour after the open.
Before Tuesday’s open, the Labor Department said US employers added 148k new jobs in September, missing estimates for a gain of 180k. Meanwhile, the unemployment rate slid to 7.2% which was the lowest level since November 2008. Stocks rallied and the US dollar fell because this suggests the Fed will not taper in 2013.. Meanwhile, construction spending rose 0.6% to an annual rate of $915.1 billion in August.
Stocks closed lower on Wednesday and snapped a 5-day win streak. Markets in Asia were hit after fear spread regarding China’s economy and their financial system. One of China’s largest banks, The Industrial and Commercial Bank of China (ICBC) wrote off #3.7 billion in bad debt for the first half of 2013. Separately, rumors spread that China’s central bank may look to tighten liquidity to combat inflation risks. The European Central Bank said they will begin a stress test for about 130 banks in November. The stress test is designed to see whether European banks are able to withstand another financial mess. Economic data in the US was mixed. Import prices rose 0.2% in September but that did not spark inflation fears.

THURSDAY & FRIDAY’S ACTION:  Bulls Are In Control

The bulls immediately showed up and quelled the bearish pressure and sent stocks higher on Thursday. The benchmark S&P 500 jumped and closed above 1750 after a flurry of mixed to stronger economic and earnings data was released. In China, HSBC’s flash PMI, which measures their manufacturing sector, rose and topped estimates largely due to new orders. In Europe, Markit’s flash PMI unexpectedly slowed in October. In the US, weekly jobless claims slid by 12k to a seasonally adjusted 350k, which missed estimates for 340k. The US trade deficit widened by a modest 0.4% to $38.9 billion in August as exports slid. After the bell, AMZN and MSFT gapped up after releasing their Q3 results. Stocks were quiet on Friday as investors digested the recent move.

MARKET OUTLOOK: SPX Tops 1750

The market is very strong and evidenced by the very impressive action we are seeing in the major averages after another relatively short pullback. Remember, we focus more on how stocks react to the news than the news itself. So far, the action has been very healthy which bodes well for this very strong bull market. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.

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