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.
At this point, the Dow Jones Industrial Average and the NYSE Composite Index have traded above resistance at their long term 200-day moving average (DMA) lines and recent chart highs. The tech-heavy Nasdaq Composite, benchmark S&P 500, and small-cap Russell 2000 index remain slightly below their recent chart highs. However, the fact that all of the major averages are trading above their respective 2-month downward trendlines bodes well for this five week rally. In order for a new leg higher to begin, all the major averages must close and remain above their respective resistance levels. Remember that the window remains open for for high-ranked stocks to be accumulated when they trigger fresh technical buy signals. Trade accordingly.
The benchmark S&P 500 Index marked Day 14 of its current rally attempt and is currently encountering resistance just below its 200 DMA line. The Dow Jones Industrial Average marked Day 5 of its latest rally attempt while the Nasdaq Composite marked Day 3. At this point, the window is now open for the major averages to produce a sound follow-through day (FTD) until the recent lows are breached. Furthermore, it is well known that a market should not be considered “healthy” unless it trades above its rising 200-day moving average (DMA) line. The fact that all the major averages are below both their 50 & 200 DMA lines bodes poorly for the near term. That said, the bears will likely remain in control until the popular averages close above their important moving averages. Trade accordingly.
Friday, December 14, 2012 Stock Market Commentary: Friday marked day 20 of the current rally attempt (that began on Friday, November 16, 2012- after politicians hinted that a deal would get done for the fiscal cliff). Over the past 20 sessions, the market bounced from November’s low (SPX ~1343) to November’s high (SPX ~1435), or…
Market Action-Confirmed Uptrend
The market is back in a confirmed uptrend after a modest (and healthy) -6% correction from its post-recovery highs. We find it bullish to see the mid-cap S&P 400 index and the small cap Russell 2000 index both hit fresh all-time highs! In addition, the Dow Jones Industrial Average vaulted to a fresh post-recovery high and the S&P 500 and Nasdaq composite are just shy of fresh 2011 highs. In other news, a slew of other markets vaulted to fresh recovery highs most notably: crude oil, euro, gold, and silver which bodes well for the “risk on” trade and by extension U.S. equities. Finally, we are very happy to see a slew of high ranked stocks trigger fresh technical buy signals in recent weeks which suggests higher, not lower prices lie ahead. If you are looking for specific help navigating this market, please contact us for more information.
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