Another Positive Week On Wall Street

Long-Term Look At The US Stock Market

Friday, August 17, 2012
Stock Market Commentary:

The benchmark S&P 500 index has rallied in 9 of the past 11 weeks which shows how strong this market actually is. The underlying notion that has helped stocks rally has been further easing from global central banks. Some market participants are hoping that the tepid economic and earnings data we have seen recently will force at least one of the prominent central bank’s hand into another round of easing in the near future.

Monday-Wednesday’s Action- Stocks Edge Higher:

Stocks ended mixed on Monday but continued trading in a relatively tight trading range as this market continues to coast through the final weeks of summer. The standout winner for us on Monday was Google (GOOG- which we own for full disclosure). The stock rallied nearly +3% on Monday after announcing plans to cut 4,000 jobs from its Motorola Mobility business and said it will acquire Frommer’s from publisher John Wiley & Sons (JWA). This sent shares of Yelp (YELP) and TripAdvisor (TRIP) lower -7.7% and 4.5% respectively on the news. In other news, the volatility index, or the VIX,  fell to levels not seen since June of 2007! For what its worth, that was four months before the market topped out in 2007 and we all know what happened in 2008.
Stocks opened higher but ended flat on Tuesday after the latest economic data from the US and Europe was mixed to slightly better than expected. US retail sales swelled by +0.8% in July which topped the Street’s forecast for a gain of +0.2%. Excluding autos, retail sales increased by +0.8% which also topped the Street’s expectation for a gain of 0.3%. Overall producer prices rose by +0.3% in July which barely beat the Street’s estimate for a gain of +0.2%. The report showed that core producer prices increased by +0.4% which was higher than the +0.2% consensus. GDP in the eurozone fell slightly in the third quarter however the “big” miss that everyone was expecting did not occur. Wednesday was another flat, light volume, tight trading range day on Wall Street as the summer doldrums remain in full gear. Economic data was in-line to slightly better than expected. Inflation pressures remained at bay evidenced by an unchanged reading in the consumer price index. This missed the Street’s expectation for a gain of +0.2%. Core prices, which exclude food and energy, also missed estimates with a gain of +0.1%.

Thursday & Friday’s Action: Merkel Sparks Broad Risk-on Rally

Stocks rallied on Thursday after German Chancellor Angela Merkel backed the European Central Bank’s efforts to combat the euro zone debt crisis. Merkel publicly supported ECB president Mario Draghi’s comments that the ECB will do whatever it takes to defend the euro. Merkel made it clear that his comments echoed views of other European leaders. News on the economic front was mixed. The Philly Fed survey fell for the fourth consecutive month while weekly jobless claims rose to a seasonally adjusted 366,000, matching expectations. The Commerce Department said housing starts unexpectedly fell last month to a seasonally adjusted annual rate of 746,000 units. The report also lowered June’s initial reading which is not ideal. Stocks on Friday were quiet as investors digested the latest round of economic data. US consumer confidence jumped to its highest level since May which bodes well for the broader economy. The Conference Board said leading indicators rose +0.4% in July to 95.8 which topped the Street’s estimate for a gain of 0.2%.

Market Outlook- Confirmed Rally

From our point of view, the market is in a confirmed rally which means the path of least resistance remains higher. It is encouraging to see all the major averages trade back near their 2012 highs! Technically, the 200 DMA line and June’s lows are the next level of support while April’s highs are the next level of resistance for the major averages.  As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!

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