Friday, March 23, 2012
Stock Market Commentary:
Monday-Wednesday’s Action: Pullback Begins
In the U.S., stocks were relatively quiet on Monday as investors digested the prior week’s strong move and the latest round of housing data was released. The National Association of Home Builders/Wells Fargo Housing Market Index held steady at 28 in March. The index is still below the boom/bust level of 50 which separates positive and negative sentiment but is now holding steady at its highest level since June 2007. In other news, AAPL said it will offer a $2.65 dividend and offer a share buy back to help utilize its massive pile of cash. Before Tuesday’s open, futures were down sharply due to renewed fear that China’s red-hot economy may begin to slow. Economic data was light in the U.S. but the news that did come out was mixed. The Commerce Department said housing starts fell -1.1% in February to a seasonally adjusted annual rate of 698,000 units, but building permits vaulted to their highest level in more than 3 years! The Street was looking for housing starts to be at a 700,000-unit annual rate.
Stocks slid on Wednesday after Ben Bernanke said that he would take additional steps to stimulate the economy if conditions worsened. The Mortgage Bankers Association said weekly mortgage applications fell in the middle of March due to a drop in refinancing demand. The National Association of Realtors said home sales slid -0.9% in February to a seasonally adjusted annual rate of 4.59 million and revised January’s reading to 4.63 million. That was the highest level since May 2010. Equally important, housing stocks continue to act well and for the most part remain above their respective 50 DMA lines.
Thursday & Friday’s Action: China And Europe Slow, U.S. Economy Remains Fines:
Before Thursday’s open, stocks in Europe fell after two weaker-than-expected economic data points from China and Europe were released. China’s PMI, which measures its manufacturing sector, slid for the 5th consecutive month which led many to question the health of the global recovery. A few hours later, the euro-zone said its PMI index unexpectedly fell due to weakness in France and Germany, which are Europe’s two strongest economies. Separately, there was a 24-hour strike in Portugal to protest their austerity measures and Italy’s largest trade union also called for a strike which would weaken two already fragile economies.
All this overshadowed decent strength from the U.S. economy. The Labor Department said weekly jobless claims fell -5,000 to 348,000which was a fresh four year low. The Conference Board said its index of leading economic indicators rose +0.7% in February which topped the Street’s estimate for a gain of +0.4%. Finally, home prices remained relatively flat in January across much of the U.S. according to the Federal Housing Finance Agency. However, compared January 2011, prices fell by -0.8%. Stocks were relatively quiet on Friday as investors digested a busy week of economic data. The Commerce Department said new home sales unexpectedly fell by -1.6% to a seasonally adjusted 313,000-unit annual rate in February. The report showed that the median home price swelled by +8.3% to $233,700, the highest level since June.
Market Outlook- Confirmed Rally
Risk assets have begun pulling back which at this point is considered normal. The key going forward is to gauge the health of the pullback and see if the bulls are able to defend logical areas of support (recent chart lows and important moving averages). So far this action is considered healthy for the risk on trade. However, if sellers show up and support is breached then the bears will have regained control of this market. 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!