Stocks negatively reversed (opened higher but closed lower) from fresh record highs on the first two trading days of 2014. The market still looks very strong and a pullback of some sort would be welcomed here. The Fed will now be printing $75B each month instead of $85B, which is still very bullish for stocks. Technically, the action continues to be very bullish as the market as the benchmark S&P 500 found support and bounced perfectly off its 50 DMA line in the middle of December. As long as support holds, by definition, the bulls remain in control of this market. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold. In the short term, the market is clearly extended and due for a another short term shallow pullback. Meanwhile, the intermediate and long term outlook remain very bullish as the major averages and a slew of leading stocks continue to act very well.
MONDAY-WEDNESDAY’S ACTION: 2013 Goes Out With A Bang
Stocks were quiet on Monday as trading dried up ahead of the shortened holiday week. Previously owned homes sales rose less than expected in November. A slew of housing stocks soared on hopes that home prices across the country will continue to rise in 2014.
Stocks rallied on New Year’s Eve as the S&P 500 hit another all-time high and surged a rather impressive 29% in 2013! The DJIA and Nasdaq composite jumped 26%. The two standout winners of 2013 were the Nasdaq Composite and the Small-Cap Russell 2000, both jumping a very healthy +37%. That was the best year for the market since the late 1990’s. Consumer confidence rose to 78.1 in December from 72 in November, beating estimates for a reading of 76. The S&P Case Shiller home price index rose 13.6% in October from the same period in 2012. Separately, the ISM purchasing manager’s index slid to 59.1 in December from 63. Gold and silver were whacked in 2013, both falling near 30%. Stocks were closed on Wednesday in observance of the New Year Holiday.
THURSDAY & FRIDAY’S ACTION: Stocks Fall in 2014
Stocks fell on the first trading day of the year for the first time since 2008. What does this mean for 2014? Statistically nothing. There is no conclusive evidence with any one trading day and the overall market’s performance for the year. I’m sure many people can draw multiple conclusions on what this means for 2014 based on any narrow sample set of data, but from our point of view we rather remain objective and aligned with the broader uptrend that has been in place since the March 2009 low. We would be remiss not to note that the market is way overdue for a normal 10% correction. Remember global central banks are printing billions of dollars each day and we learned a long time ago, not to fight the Fed. Stocks were quiet on Friday as the massive snow storm blanketed half the country.
MARKET OUTLOOK: BULLS ARE IN CONTROL
As we have been saying all year, the market is very strong in all three time-frames: short, intermediate, and long. The last pullback was shallow in size (%decline) and scope (days/weeks, not months). As always, keep your losses small and never argue with the tape.