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.
The market remains in a correction, which emphasizes the importance of raising cash and adopting a strong defensive stance until a new follow-through day emerges. For the past several weeks, this column has steadily noted the importance of remaining very selective and disciplined because all of the major averages are still trading below their downward sloping 50-day moving average (DMA) lines. In addition, their 50 DMA lines may continue to act as stubborn resistance. It was also recently noted that the NYSE Composite and the benchmark S&P 500’s 50 DMA lines sliced below their respective 200 DMA lines, an event known by market technicians as a “death cross” which usually has bearish implications. Trade accordingly.
Stocks Flirt With Record Highs Stocks are strong. Small and mid-cap stocks led the way higher last week as the small-cap Russell 2000 ($IWM) and mid-cap S&P 4o0 ($MDY) broke out of big bases. For now that is bullish action and illustrates strong appetite from investors of all size. Meanwhile, the popular indices paused to…
Tuesday, December 20, 2011 Stock Market Commentary: Stocks rallied after the latest round of U.S. housing data topped estimates which bodes well for the ailing housing market. From our point of view, the market is back in a correction as the latest follow-through day (FTD) failed after the benchmark S&P 500 sliced below its 50…
Sideways Action Continues…For Now Stocks fell last week as the major indices continue to move sideways to consolidate their very sharp late-August sell-off. The longer the major indices spend below their important 50 and 200 DMA lines, the weaker the market gets. A new downtrend began when the S&P 500 sliced below 2040 on August 20, 2015….
Market Outlook- Confirmed Rally
The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests the rally is back in a confirmed rally as all the major averages are now flirting with fresh 2011 highs. Until all the major averages violate their respective 50 DMA lines on a closing basis, the market deserves the bullish benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.
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Wednesday marked Day 3 of the current rally attempt which means that as long as Monday’s lows are not breached the earliest a proper follow-through-day (FTD) could emerge will be this Thursday. In order for a proper FTD to emerge one would have to see at least one of the major averages rally at least +1.7% on higher volume than the prior session as a new batch of high ranked leaders trigger fresh technical buy signals. Once that occurs, then the current rally attempt will be confirmed and the ideal window for accumulating high ranked stocks will be open. However, if Monday’s lows are breached, then the day count will be reset. Trade accordingly.
