Stocks Rally On Shortened Holiday Week

Long-Term Look At The US Stock Market

Friday, November 23, 2012
Stock Market Commentary:

The major averages rallied during the shortened holiday week as optimism spread that the Fiscal Cliff will be resolved. Technically, the market is simply bouncing from egregiously oversold levels as the major averages still remain in the middle of their 10-week well defined downtrends. Friday marked Day 5 of a New Rally Attempt which means that the window is now open for this rally attempt to be confirmed with a new follow-through day. All we need to see at least one of the major averages rally at least 1.4% on heavier volume than the prior session. If November’s lows are taken out, then odds favor lower, not higher prices, will follow and the day count will be reset. The path of least resistance is down until the major averages confirm their latest rally attempt and break above resistance and their downward trendlines.

Stocks Bounce From Oversold Levels

Stocks soared on Monday as hope spread that the fiscal cliff will be resolved and the tensions in Europe and the Middle East will ease in the near future. Enthusiasm spread after leaders from both sides of the aisle expressed confidence that a deal would be reached before Christmas and Obama said he is “confident” that leaders would deal with the fiscal issues. European stocks rallied after Eurozone finance ministers gave preliminary approval for Greece to get an additional disbursement of 44B euros in emergency aid by Dec 5, assuming the debt-laden nation meets its remaining conditions for the loan.
In the U.S., the National Association of Realtors said existing home sales jumped by +2.1% in October to a seasonally adjusted rate of 4.79M units. This topped the Street’s estimate for a gain of 4.75M units and bodes well for the ongoing housing recovery. The NAHB/Wells Fargo Housing Market Index, which measures sentiment among home builders, rose for the seventh consecutive month and hit its highest level in November.
Stocks opened lower but closed higher (healthy sign) on Tuesday as stocks digested some of the prior session’s strong gains. Housing starts jumped to an annualized rate of 894,000 units during October which topped the Street’s estimate for 840,00 and continues to trend in higher. Building permits missed estimates and slid to 866k from 890k in October. A slew of housing stocks surged on the news because nearly all the housing data continues to show signs of improvement. After Tuesday’s close, Moody’s, one of the popular rating agencies, cut France’s debt rating one notch from AAA to AA1. Interestingly, the euro shrugged off the downgrade and ended the week higher.
Stocks were relatively flat on Wednesday which was the last full trading day of the week. EZ officials approved the last tranche of aid to Greece which helped the euro edge higher and allowed eurozone officials to kick their debt-laden can further down the road. A cease-fire was called between Isreal and Hamas which helped ease concerns. U.S. economic data was mixed. The Labor Department said weekly jobless claims matched estimates for 410,000 new claims, and were elevated for the second straight week due to distortions from Sandy. The Thomson Reuters/University of Michigan consumer sentiment index missed estimates but still ticked higher to 82.7 compared to October’s reading. Elsewhere, the Conference Board’s Leading Economic Index for edged higher by 0.2% in October which matched estimates. The latest read on U.S. manufacturing topped estimates and grew at its fastest pace in five months which bodes well for the broader economy. Markit’s U.S. “flash” manufacturing PMI rose to 52.4 which also topped the boom/bust level of 50. The stock market was closed on Thursday in observance of Thanksgiving. Stocks closed early on Black Friday as initial projects suggest retail sales were higher than last year.

Market Outlook: Downtrend

From our perspective, the market is in a clear downtrend and has now entered correction territory as the major averages continue to fall. On October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19.  Since then, stocks have gone straight down and a lot of technical damage has occurred. We will turn more bullish once the major averages confirm a new rally attempt and then trade back above their respective down trendlines and 50 DMA lines.  As always, keep your losses small and never argue with the tape.  

Stocks Rally On Shortened Holiday Week

SPX- Stocks Perched Below Resistance

SPX- Stocks Perched Below Resistance

Friday, January 06, 2012
Stock Market Commentary:

Stocks and a slew of other risk assets ended mixed to lower for a second straight day as fears resurfaced out of Europe. Investors are hopeful that 2012 will be a better year for U.S. equities and risk assets than 2011 or 2010. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line (shown above). Looking forward, the next area of resistance remains Q4’s highs (1292) and then 2011 highs near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above  its 200 DMA line.

Monday-Wednesday’s Action: Strong Start to 2012

On Monday, all markets in the U.S. were closed in observance of New Year. Stocks opened higher on Tuesday which was the first full trading day of 2012. News on the economic front helped the risk on story. PMI data from China and Europe were positive which helped offset concerns of a global economic slowdown. In the U.S.. manufacturing data accelerated in December, rising to 53.9  which topped the Street’s estimate of 53.2. A separate report released by the Commerce Department showed that construction spending rose +1.2% in November which was the highest level since June 2010.
On Wednesday, stocks slid as fears resurfaced regarding refinancing Europe’s onerous debt levels. Overnight, commercial banks in Europe deposited a new record of 453B euros (~$591B) at the European Central Bank (ECB) which sparked fears regarding the underlying health of the European banking system. Italy’s largest bank, UniCredit SpA, sold new shares to raise 7.5B euros (~$9.8B) to help strengthen its capital position.

Thursday & Friday’s Action: Stocks Rally On Strong Jobs Data

On Thursday stocks in Europe and Asia sold off after the euro fell to a fresh 16-month low as fears spread regarding the continents onerous debt levels. The closely watched euro fell below 1.28 for the first time since September 2010 which normally bodes poorly for other risk assets. However, U.S. stocks curbed their losses as investors digested a much stronger than expected jobs report. ADP, the country’s largest private payrolls firm, said U.S. employers added +325,000 new jobs last month which easily topped the Street’s estimate. Before Friday’s open the Labor Department said U.S. employers added 200,000 new jobs in December which topped the Street’s estimate. Investors were also happy to see the unemployment report fall to 8.5% which is another step in the “right” direction. However, fears regarding the ongoing EU debt crisis still dominated which put downward pressure on stocks.

Market Outlook- New Rally Confirmed

Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (downward trendline and 200 DMA line). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. 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!

Stocks Rally on Shortened Holiday Week

Thursday, December 23, 2010
Stock Market Commentary:

The major US averages edged higher on this shortened holiday week capping a fourth consecutive weekly gain for the Dow Jones Industrial Average and benchmark S&P 500, fifth weekly gain for the tech-heavy Nasdaq composite, and sixth consecutive weekly advance for the small-cap Russell 2000 index. It is also very impressive to see that the S&P 500 rally in 14 out of the past 17 days, which is very strong action. All US markets will be closed on Friday in observance of Christmas and will remain open on Friday, December 31 2010 (even though it is NYE). Market internals remain healthy, evidenced by an advancing advance/decline line and an expanding number of stocks reaching new 52-week highs.

Monday & Tuesday’s Action- Stocks Edge Higher As Euro Weakens: Fed Extends Swap Lines

On Monday, Moody’s Investors Service downgraded several Irish lenders and debt securities. This sent the Euro plunging to a fresh record low against the Swiss franc and sent the euro slightly lower against the greenback. It was encouraging to see the benchmark S&P 500 index hit a new two-year high as the tech-heavy Nasdaq composite and small-cap Russell 2000 indices both marked fresh multi year highs.
On Tuesday, stocks drifted higher after the Federal Reserve extended its swap lines with the European Central Bank, and the Central banks of: Japan, Switzerland, Canada, and the U.K to help ease dollar liquidity issues. The latest reading on US retail sales was positive evidenced by the weekly measure of comparable store sales at major retail chains, published by the International Council of Shopping Centers and Goldman Sachs (GS). The ICSC/Goldman Sachs index rose +1.7% during the third shopping week of December. The year-on-year pace also rose more than one percentage point to +4.2%, which was the strongest reading since Q2.

Wednesday & Thursday’s Action- GDP, ECB, Jobs, & Housing Data:

The US government said third quarter GDP rose at a +2.6% annual rate. This topped some estimates for a +2.5% reading but fell short of the median estimate for a +2.8%. The Federal Reserve’s preferred inflation gauge, which excludes food and energy and tied to consumer spending, rose at a modest +0.5% pace for the slowest growth since records began in 1959. Elsewhere, sales of existing homes improved but remain slow. Existing home sales rose +5.6% last month to 4.68 million, which fell short of the Street’s estimates.
The European Central Bank will lend banks +149.5 billion euros ($196.8 billion) for three months to help them meet their liquidity needs over the year-end period. The ECB, which is based in Frankfurt, said 270 banks asked for assistance while which will be loaned at its average benchmark interest rate over the period. Tomorrow, a slew of European banks need to repay 96.9 billion euros in maturing 12-month loans and +38.2 billion euros in three-month loans on the Friday. Stocks ended mixed on a busy news day on Friday. The durables goods report was mixed but core orders may be increasing again. In November, durables orders fell -1.3%, following a revised -3.1% drop in October. The Labor Department said jobless claims fell by 3,000 to 420,000 last week. Elsewhere, consumer confidence held steady last month as new home sales swelled by +5.5% to a 290,000 unit annual rate last month.

Market Action- Market In Confirmed Rally Week 17 Ends

It is encouraging to see the bulls show up in November and defend the 50 DMA lines for the major averages. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.

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