Stocks and a slew of other “riskon” assets were smacked last week as the latest round of data confirmed our longstanding thesis that the global economy is “slowing, not growing. From a technical standpoint, the action is weak and continues to get “weaker.” In early May, all the major averages sliced below their respective 50 DMA lines which prompted us to label this market “in a correction.” For the past few weeks, we have written about the importance of being defensive especially because the action in the major averages and a slew of leading stocks deteriorated. After the sharp fall, the bulls showed up and did their best to defend the longer term 200 DMA lines for the major averages. The NYSE composite is the only popular index that couldn’t hold above its 200 DMA line. At this point, the next level of support for the major averages is their respective 200 DMA lines. If that level is “broken” then we have to expect another leg lower to begin.
Monday-Wednesday’s Action- European Woes Continue To Dominate The Headlines:
U.S. Stocks were closed on Monday in observance of the Memorial Day holiday. Stocks opened higher on Tuesday but the bulls quickly ran out of gas after Spain was downgraded by Egan-Jones. It was the second time the small rating agency cut Spain’s rating in a week. Despite the downgrade, U.S. stocks ended the day with nice gains as investors focused on encouraging polls from Greece that favored their more bailout friendly party ahead of the June 17 election. In other news, the S&P/Case Shiller index showed that home prices in the U.S. edged higher; gaining +0.1% in March which missed the Street’s expectation for a gain of +0.2%. A separate report showed that U.S. consumer confidence fell to 64.9 in May which was the lowest level in four months and missed the Street’s forecast of 70.0.
Stocks were pounded on Wednesday after the euro sliced below 1.24 vs the USD which was the lowest level since 2010. To put this ominous action in perspective, the last time the euro was this low the S&P 500 was trading at just above 1000! This weighed on other “riskon” assets sending crude oil into bear market territory (defined by a decline of >20% from its 2012 high) and erased copper’s gains for the year. The latest economic data from the U.S. was not ideal. The National Association of Realtors said pending home sales slid by -5.5% in April which missed estimates for a gain of +0.1% and hit a fresh four month low. In other news, the European Commission said the euro zone must move towards a banking union (a more unified and centralized banking system), cut debt, and issue eurobonds in order to stem the crisis and boost growth. The report occurred after fresh concerns spread regarding Spain’s ability to stay in the euro zone. The yield on Spanish debt soared and Italy’s debt auction fell short of estimates which also added pressure on the already fragile eurozone.
Thursday & Friday’s Action- Global Economy Continues To Slow:
Stocks were quiet on Thursday as investors digested a slew of economic data. Before the bell, the Labor Department said weekly jobless claims rose by 10,000 to a seasonally adjusted 383,000, gaining for the fourth consecutive week (which is not healthy for the jobs market).The ADP, the country’s largest payrolls company, said U.S. employers added 133,000 new jobs in May which missed the Street’s estimate for a gain of 150,000. The Commerce Department said the U.S. economy grew at a slower pace than expected in the first quarter of 2012 with GDP growing at a +1.9% annual rate. Not only did it miss the Street’s estimate but it was also lower than last month’s initial projection of +2.2% and Q4 2011’s +3.0% rate. The Chicago Purchase Managers Index for May fell to 52.7 in May from 56.2 in April. Investors were disappointed because they were expecting a reading of 56.5. Stocks were clobbered on Friday after the latest data from China & the US pointed to slower not stronger economic growth. US employers only added 69,000 new jobs last month as the unemployment rate jumped to 8.2%.
May 2012 was awful for most risk on markets. Crude oil officially entered bear market territory from its 2012 high, gold and copper were smacked and U.S. stocks held up better than most riskon markets but were also hit hard. The DJIA & the S&P 500 slid by more than 6% while the Nasdaq plunged nearly 7%. The Dow and Nasdaq posted their largest monthly declines since May 2010 (Flash Crash), while the S&P posted its largest single month decline since September 2011.
Friday, April 12, 2013 Stock Market Commentary: The market remains in a confirmed rally as the bulls showed up and quickly quelled the bearish pressure from the first week of April. So far, we have seen two very mild pullbacks in the S&P 500, both very shallow in size (<3%) and scope (less than 2…
It is encouraging to see the bulls show up and defend the 50 DMA lines for the major averages. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.
Looking at the market, Wednesday marked Day 3 of a new rally attempt which means that as long as Monday’s lows are not breached, the earliest a possible follow-through day could emerge will be Thursday. However, if Monday’s lows are taken out, then the day count will be reset and the chances for a steeper correction increase markedly. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is key.
STOCK MARKET COMMENTARY: FRIDAY, JULY 26, 2013 The major averages continue acting very well as they paused last week to digest their four week and very strong rally. It is healthy to see the major averages remain perched near their highs as investors await a slew of data next week (GDP, Fed Meeting, Jobs Report,…
Looking at the market, the Dow Jones Industrial Average and benchmark S&P 500 index both closed near their respective resistance levels as they quietly consolidate their recent gains in lighter pre-holiday volume. Meanwhile, the tech-heavy Nasdaq composite continues to lead its peers as it managed to hit another 2009 high on Wednesday.
Remember that the S&P 500 plunged -58% from its all time high in October 2007 of 1,576 to its March 2009 low of 666. Since then, the market has rebounded over +65% but still remains -29% below its all-time high of 1,576. In addition, the index has retraced nearly -50% (455 points) of its decline (910 points) which is a popular Fibonacci level used by many technical analysts. Normally, markets rebound approximately 50% before resuming their prior trend (which would be down in this case). Longstanding readers of this column know that we do not predict the future. Instead, we remain open to any possible scenario that may unfold and interpret what we see happening by remaining objective and carefully analyzing the tape (price and volume) each day.
Remember, it is important to note that the major averages have been steadily rallying since early February and a pullback of some sort should be expected. However, the fact that we have yet to see a modest pullback bodes very well for the bulls. Trade accordingly.
