Daily Market Commentary

Stocks End Week, Month, & Quarter Higher

TransportsFriday, March 28, 2013
Stock Market Commentary:

Stocks ended higher last week as Cyprus woes eased and stocks enjoyed their largest first quarter gain in years. So far the action in the major averages remains very strong as the number of distribution days (i.e. institutional selling) remains limited and the last pullback was shallow in size and scope. The S&P 500 pulled back 2.9% (size)  after the minutes from the Fed’s February meeting hinted that QE might end sooner than originally expected. The pullback lasted less than 1-week (scope) because Bernanke made it clear when he testified on the hill that the benefits of QE outweighed the costs.  For months, we have been saying that we want to analyze the health of the pullback and so far the pullback was very healthy because it was short in both size and scope. Going forward, the 50 DMA lines are support for the major averages. Until they are breached, the market deserves the bullish benefit of doubt.

Monday-Wednesday: European Fears Resurface

Stocks opened higher on Monday but quickly turned lower after the Dutch finance minster said Cyprus will serve as a template for Europe. Stocks turned higher but still ended lower after a spokesperson denied the comments. Separately, a Central Bank source told Reuters that most Cyprus banks will reopen on Tuesday, while the Bank of Cyprus and Popular Bank will reopen on Thursday. In addition, the latter two banks will have a restriction of a 100 euro-per-day withdrawal limit, according to the sources. in the U.S., the Senate narrowly passed a budget plan which seeks to raise almost $1 trillion in new tax revenues by closing some tax breaks for higher income tax payers. All D.C. is doing is pushing the can further down the road and not solving any real issues. Over the summer we should expect an additional showdown over raising the debt ceiling.
Stocks rallied on Tuesday as investors digested the latest round of mixed economic data from the US and fear eased in Europe. In the US, new home sales hit an annualized rate of 411k in February which missed January’s reading of 431k and the Street’s forecast for 426k. On a positive note for housing, the January Case-Shiller index, which measures home prices in 20 metropolitan areas in the US, surged 8.1% which topped the 7.5% average estimate. Elsewhere, consumer confidence slid in March to 59.7 which missed the Street’s estimate for 66.9 and was lower than February’s reading of 69.  Durable goods rose 5.7% last month which easily topped the 3.8% estimate. Much of the gain was due to the 21.7% jump in transportation orders which is illustrated in the strong rally we have seen in the IYT (Transportation ETF).
Stocks opened lower on Wednesday as fear spiked in Europe. The focus was predominantly on Italy as the country’s main leadership candidate Pier Luigi’s Persani reportedly said that only an “insane person” would want to run debt-stricken nation. He also said that Italy is “in a mess and faces a difficult year ahead.” which hurt confidence. Elsewhere, European confidence plunged which bodes poorly for the euro and European stocks.

Thursday & Friday’s Action: Cyprus Fear Eases

Before Thursday’s open, investors digested a slew of data. Banks in Cyprus finally reopened after their EU partners agreed to a last minute bailout. In the U.S., the third estimate for Q4 2012 GDP showed the economy grew by +0.4% which topped the Street’s expectation for a gain of +0.3%. It also topped the initial reading of -0.1% and the revised reading of +0.1%. Weekly jobless claims totaled 357k which topped the Street’s estimate for 338k. Markets were closed on Friday in observance of Good Friday.

Market Outlook: Uptrend

The market is strong as the bulls continue to quell the bearish pressure. The major averages are building a new and healthy 4 week base as they paused to digest their recent and robust rally. Until the market breaks and closes below its 50 DMA line- the bulls deserve the benefit of the doubt. As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we published a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce” and the rest is history. Most recently, on Wednesday, February 20, 2013 we sent out a note saying, “Time For A Pullback” and a week later on Feb 27, 2013 we sent a note saying “Bulls Quell Bearish Pressure.” Stay tuned as we will continue to keep you in sync with the market and ahead of the crowd. As always, keep your losses small and never argue with the tape.

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