The current rally is under pressure as distribution (institutional selling) spiked higher in the first week of the second quarter. The elevated distribution sent a slew of leading stocks and market indexes below their respective 50 DMA lines. Defense is paramount until the market can make its next move. So far, the S&P 500 is down a little over 2% from its Q1 high and is sitting near its 50 DMA line. The last pullback was shallow in size (-2.9%) and scope (only 1-week). The market is way overdue for a larger pullback and only time will tell if we roll over and get the larger pullback that normally occurs around this time of year.
European and Canadian stock markets were closed on Monday for Easter which led to a relatively quiet session. Volume in the U.S. stock market was the third lowest of the year. Separately, in the US, the March ISM Index missed estimates and fell to 51.3 in March from 54.2 in February and missed the Street’ estimate for 54. March’s reading was the lowest reading since December and the first decline since November.. In Asia, economic data failed to impress which bodes poorly for the global economy. China’s purchasing manufacturing index (PMI) and Japan’s Tankan Survey both missed estimates which led some to question the health of the global recovery.
Stocks rallied on Tuesday as investors looked past a weaker than expected manufacturing report from Europe and embraced stronger than expected economic data from the US. Markit’s Eurozone Manufacturing PMI fell in March to 46.8 from 47.9 in February. March’s reading barely beat the Street’s estimate for 46.6 and was the 20th straight month below the boom/bust level of 50. Factory orders in the US rose 3% which beat the Street’s estimate for 2.9%.
Stocks in the U.S. fell on Wednesday as a slew of economic data missed estimates. The ISM service index fell to 54.4 in March from 56 in February and missed the Street’s estimate for 55.8. This was the slowest reading since August 2012. Elsewhere, ADP, the country’s largest private payrolls company, said US employers added 158k new jobs in March which fell short of the street’s estimate for 198k. Separately, the Mortgage Bankers Association said that home loan applications fell -4% last week primarily due to a decline in refinancing.
Thursday & Friday’s Action: BOJ & Fed Are Printing $8 billion a day
Stocks edged higher on Thursday as investors digested a slew of central bank related data. The Bank of Japan followed Bernanke’s script and will now print close to $79B a month to stimulate their lackluster economy and help spark inflation. The Nikkei surged and the Yen plunged on the news. Elsewhere, the Bank of England and the European Central Bank held rates steady and did not announce a new round of stimulus. ECB President Mario Draghi made it clear that Cyprus was not a template for other European nations and said that the country’s problems would still exist if they left the euro. The Euro rallied on the news as his comments helped allay concerns that the euro would break-up. In the U.S., weekly jobless claims rose to a four-month high which bodes poorly for the ailing jobs market. Before Friday’s open, the Labor Department said U.S. employers only added 88K in March which missed the Street’s estimate for just under 200k. this was the smallest rise since June 2012 and bodes poorly for the ongoing economy. The unemployment rate was 7.6% because more people left the labor force.