Stocks enjoyed their 8th consecutive week as the major averages continue to march higher. As we have mentioned several times recently, in the short-term the market is extended and a light volume pullback would do wonders to restore the health of this rally. The market negatively reversed (opened higher and closer) on Friday which could signal the start of a short term pullback. So far, these pullbacks are lasting a matter of days, not weeks or months- which illustrates how strong the bulls are right now. The intermediate and long term outlook remains very bullish as the major averages and a slew of leading stocks continue to act very well. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold. Every pullback this year has been shallow in both size (% decline) and scope (weeks, not months). The primary catalyst behind this 4.5 year bull market remains easy money from global central banks. We know that the easy money is here to stay (for now). Therefore, barring some unforeseen massive decline, this bull market is alive a well. Eventually the music will end, but as a market practitioner, our only job is to align ourselves with what is actually happening, not what someone thinks will happen.
MONDAY-WEDNESDAY’S ACTION: Nasdaq Tops 4k
Stocks opened higher but ended mixed on Monday after the Nasdaq Composite jumped above 4k mark for the first time since 2000. Sellers showed up and the Nasdaq closed just below that psychologically important level. Over the weekend, Iran reached a deal with several western nations to limit its nuclear program in exchange for easier trade restrictions. Oil and gasoline futures slid on the news. In the US, pending home sales slid -0.6%, missed estimates and marked the fifth straight monthly decline.
Stocks rallied on Tuesday as the major averages continued edging higher ahead of the holiday. Building permits rose to 974k in September and by 1.034 million in October, topping estimates for a gain of 932k in both months. This was the highest reading since October 2008 and bodes well for the ongoing housing recovery. The September Housing Price Index from the FHFA rose by 0.3% which was another healthy sign for the housing market. Finally, Consumer Confidence fell to 70.4 in November, missing estimates for 72.4. The drop in confidence reduced the odds for the Fed to taper when they meet in December.
Stocks were quiet on Wednesday as investors digested a slew of economic data. Durable goods, which are goods made to last at least three years, fell by -2% in October and matched estimates. Weekly jobless claims fell to 316k easily beating estimates for 330k. Remember, fewer jobless claims is healthy for the labor market. Leading economic indicators rose by 0.2% in October which beat estimates for a gain of 0.1%. Chicago PMI rose to 63, topping estimates for 60.5. Finally, the University of Michigan said consumer confidence rose to 75.1, beating estimates for 73.3.
THURSDAY & FRIDAY’S ACTION: Thanksgiving & Black Friday
Stocks were closed on Thursday in observance of Thanksgiving. Initial indications suggest sales were higher on Black Friday compared to last year. Only time will tell if that translates into stronger Q4 earnings for retailers and the broader market.
MARKET OUTLOOK: Major Averages Close Above Round Numbers (16k, 1,800 & 4k)
The market is very strong and, in the short-term, remains very extended. The market will pullback and it is just a matter of when, not if. As always, keep your losses small and never argue with the tape.