Stocks extended their winning streak as the bulls remained in clear control of this market. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. Since then, stocks have been enjoying a very strong uptrend. The benchmark S&P 500 paused near its 2011 high (~1370) before moving higher. At this point, it would be perfectly normal and healthy to see a 5-9% pullback at any point to give the bulls a chance to consolidate the recent gain. That would bring the S&P 500 down to 1320-1260. It is important to note that the bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line.

Monday-Wednesday’s Action: Fed Stays The Course, Stocks Rally, Led By Financials

Before Monday’s open, China said its trade balance unexpectedly slowed last month. China said its trade balance slid $31.5 billion into the red in February as imports trumped exports. This was the country’s largest trade deficit in at least a decade and cast doubts regarding the ongoing global recovery. Import growth surged +39.6% on the year in February which easily topped the Street’s +27% forecast. Meanwhile, exports grew by +18.4% which was just more than half of the Street’s expectation and hit a six month high.
Before Tuesday’s open, Germany said its ZEW survey for March, which measures economic expectations, surged to 22.3 which easily topped the Street’s estimate for 10. The U.K.’s trade deficit widened slightly but still came in short of estimates for January. The real surprise was that exports to non-European Union countries rose to the highest level in history! On average economic data in the U.S. was also stronger than expected. The warmer weather across the nation helped retail sales jump to the fastest rate in five months in February. Meanwhile, the National Federation of Independent Business’ small-business optimism index increased for the sixth consecutive month to the highest level since December 2007! A separate report showed that business inventories rose by 0.7% which was the largest increase since October. Finally, the Fed concluded its latest meeting, held rates steady and largely reiterated their recently stated cautious but optimistic stance regarding the economy. The Fed’s stress tests were leaked early which helped send a slew of bank stocks soaring before Tuesday’s close.
Stocks were quiet on Wednesday as investors digested Tuesday’s strong move. Before Wednesday’s open, the government said import prices fell short of the Street’s estimate, rising +0.4% in February thanks to a large drop in food prices. Meanwhile, the U.S. current account deficit, jumped to a three-year high of $124.1 billion. A separate report showed that the Mortgage Bankers Association said demand for home loans slid by -2.4% but actually rose 4.4% excluding a drop in refinancing requests last week.

Thursday-Friday’s Action: Bulls Remain In Control

Investors digested a slew of economic data on Thursday. The Labor Department said weekly jobless claims fell to a fresh 4-year low which bodes well for the jobs market and the broader economy. Jobless claims fell by 14,000 to 351,000 last week. Meanwhile, the PPI rose +0.4%, largely due to a jump in energy prices. New York manufacturing rose and topped estimates but showed inflationary pressures are rising. Meanwhile, the Philadelphia Federal Reserve Bank’s business activity index rose for a fifth consecutive month to 12.5 from 10.2 in February. The report topped the Street’s estimate of 12.0. Stocks were quiet on Friday after consumer confidence slid last month due to rising energy prices.

Market Outlook- Confirmed Rally