Stocks rallied for a fourth consecutive week as the major averages continue to march higher. As we have mentioned several times recently, in the short-term the market is a little extended and a light volume pullback would do wonders to restore the health of this rally. The intermediate and long term outlook remains 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. That said, weakness should be bought until intermediate and longer-term technical levels are broken.
MONDAY-WEDNESDAY’S ACTION: Buy The Rumor, Sell The (Fed) News
Stocks ended mixed on Monday as investors waited for a slew of data to be released this week. So far, around half of the companies in the S&P 500 have reported results. Nearly 70% posted stronger-than-expected earnings and 54% posted stronger-than-expected revenue. The market’s reaction has been very strong as the major averages continue to march higher. After the bell, Apple reported earnings but the stock fell on Tuesday after the company said gross margins for the current quarter were below estimates.
Stocks enjoyed healthy gains on Tuesday, helping the DJIA jump to a fresh record high. In the middle of the day, IBM reported a large share buy back which helped the price weighted average hit a new record high. The Nasdaq suffered another technical glitch which disturbed data flow for nearly an hour. Economic data was mixed. Retail sales slid in September, which missed estimates for a small gain. The S&P/Case Shiller index showed that prices for single family homes rose in August. Meanwhile, inflation concerns continued to ease after the produce price index (PPI) unexpectedly slid in September for its first decline since April.
Stocks fell on Wednesday after the Fed concluded its two day meeting and decided to not taper QE. In a classic case of buy the rumor, sell the news, the market sold off and fell from record highs after the Fed meeting. Before the open, ADP, the country’s largest private payrolls company said, US employers added 130k new jobs in October, missing estimates for 150k. The consumer price index (CPI) rose 0.2% in September which gives the Fed the green light to continue printing money. After the bell, Facebook (FB), Starbucks (SBUX), and Visa reported their quarterly results.
THURSDAY & FRIDAY’S ACTION: Stocks Stay Positive For The Week
Stocks fell on Thursday but ended higher on Friday as investors digested a busy week for earnings and economic data. Stocks are now falling on stronger-than-expected economic data. The underlying notion is that stronger-than-expected economic data will force the Fed to taper sooner than expected. Manufacturing surged to a 2.5 year high which bodes well for main street. Separately, a shooting incident broke out in LAX and was thankfully contained within the hour.
MARKET OUTLOOK: SPX Stays Positive For The Week
The market is very strong and at this point it is simply pausing to digest its recent and robust rally. We will monitor the health of this pullback to see if this turns into another short term pullback or something more substantial. Remember, we focus more on how stocks react to the news than the news itself. So far, the action has been very healthy which bodes well for this very strong bull market. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.