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, January 06, 2012 Stock Market Commentary: Stocks and a slew of other risk assets ended mixed to lower for a second straight day as fears resurfaced out of Europe. Investors are hopeful that 2012 will be a better year for U.S. equities and risk assets than 2011 or 2010. From our point of view,…
Market Action- Confirmed Rally; Week 25 Begins
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, 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. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.
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Market Action- Market In A Correction; 28-Week Rally Ends
All the major averages sliced below their respective 50 DMA lines on Thursday, March 10, 2011 and have fallen hard since then. Thursday, March 17, 2011 marked day 1 of a new rally attempt which means that the earlest a possible follow-through day (FTD) could emerge would be Tuesday, as long as Thursday’s lows are not breached. However, if Thursday’s lows are breached, then the day count will be reset and odds will favor lower prices, not higher, will follow. It is important to note that the recent ominous action reiterates the importance of raising cash and playing strong defense until a new FTD emerges. If you are looking for specific help navigating this market, please contact us for more information.
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Stocks remain strong as investors digested the latest round of economic data. The benchmark S&P 500, Dow Jones Industrial Average, NYSE composite, mid-cap S&P 400, small-cap Russell 2000 and small-cap S&P 600 indices all enjoyed fresh recovery closing highs! The current rally is in its 44th week (since the March 12, 2009 follow-through day) and on all accounts still looks very strong. In addition, most bull markets last for approximately 36 months, so the fact that we are beginning our 10th month suggests we have more room to go. December’s jobs report will likely set the stage for the next near term move for the major averages but until support is broken (50 DMA lines for the major averages), this rally deserves the bullish benefit of the doubt.
Tuesday, November 22, 2011 Stock Market Commentary: The market is back in a correction after all the major averages sliced below their respective 50 DMA lines on Monday (11.21.11). A slew of risk assets were smacked after the super-committee failed to curb the $15T deficit and debt woes spread in Europe. It is also disconcerting…
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.
