Week In Review: Another Strong Week On Wall Street

111UUUPMarket Flirting With Resistance

The bulls are getting stronger and last week was another strong week on Wall Street. Last Friday Oct 2, 2015, we wrote, “Last week was a very big and important week on Wall Street! Stocks opened lower but closed higher for the week after the S&P 500 and Russell 2000 “tested” Aug’s low. Aug’s low for the S&P 500 was 1867 and last week’s low was 1871. The small-cap Russell 2000 actually broke below Aug’s low on Monday but closed above it on Friday. That’s a bullish event and stages the way for a new double bottom pattern to form. There were two bullish catalysts for Wall Street: First, technically, Aug’s lows were “tested” and defended. Second, fundamentally, the bulls were able to breathe easier because the weaker-than-expected jobs report pushed back an imminent rate hike from the Fed. At this point, Wall Street is ready for a rate hike but Main Street clearly is not. So the easy money trade is alive and well (for now).” The market rallied nicely last week and is now flirting with resistance of its latest 7-week (post August) trading range. This is bullish for the short and intermediate term. Longer term, the bulls need the S&P 500 to trade above 2020 and then 2040. Right now, support is 1867 and resistance is 2040. Until either level breaks we expect this sloppy action to continue. We are entering earnings season and will turn more bullish if leadership emerges. In the short term, the market is extended to the upside and due for a little pullback here to digest the recent and strong rally off support.

Monday-Wednesday’s Action: Stocks Rally Into Resistance

Stocks rallied nicely on Monday as investors returned in a buying mood from Friday’s jobs report rally. The PMI service index slowed to 55.1, missing estimates for 55.8. The ISM service index also slowed to 56.9, missing estimates for 58. This is the latest round of slower-than-expected economic data which followed September’s tepid jobs report. This confirms our thesis that Main Street simply is not ready for a rate hike, even though Wall Street is. Stocks opened higher on Tuesday but quickly turned lower after the major averages encountered resistance near their declining 50 DMA lines. Biotechs dragged the market lower (again) and were down another 6%.The International Monetary Fund (IMF) trimmed its global growth forecast for 2015 from 3.3% to 3.1%. The IMF said weakness in emerging markets are weighing on the global economy.
Stocks edged higher on Wednesday as the major indices flirted with their respective 50 DMA lines. Commodities, materials and transportation stocks led the market higher as they continued to bounce from deeply oversold levels. The weekly MBA Mortgage Index surged 25.5% which followed last week’s decline of 6.7%. 

Thursday-Friday’s Action: Stocks Rally After Fed Minutes

Stocks rallied on Thursday after the Fed released the minutes of its September meeting. The Fed voted 9-to-1 to keep rates at zero in September and the minutes showed Fed officials remain concerned about global weakness. China’s stock market reopened after being closed for a week due to a Chinese national holiday. Deutsche Bank announced a $7B loss on its two largest divisions. The Bank of England and the ECB held rates steady and continued their easy money stance. Initial Weekly Claims fell to 263k and beat estimates for 275k. Stocks were quiet on Friday as the S&P 500 rallied right into resistance (2020). 

Market Outlook: Sideways Action Continues

Every bull market in history has a definitive beginning and an end. It is important to note that with each day that passes, we are getting closer to the end and further away from the beginning. This bull market is aging by any normal definition and celebrated its 6th anniversary in March 2015. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market – Join FindLeadingStocks.com.

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Week In Review: SPX Snaps 2 Week Win Streak; Closes Just Below Record High

SPX- Perched Below Resistance 2.24.14STOCK MARKET COMMENTARY:

The market continues acting great considering how weak it was acting just a few weeks ago. The benchmark S&P 500 closed on Friday within a fraction of a percent below its record high (which is very healthy). Meanwhile, it was very healthy to see the Nasdaq, Nasdaq 100, Philly Semiconductor index ($SOX), and Mid Cap indices ($MDY) all hit fresh 2014 highs. So far, the action continues to support our bullish thesis that this was just another pullback within a broader uptrend. The short, intermediate, and longer term action still remain very healthy as the market simply paused to digest last year’s very strong gain. Furthermore, the bullish fundamental backdrop is still in place for stocks. Keep in mind the US economy is the largest it has ever been in history and is still growing (albeit slower than Wall Street wants). The bulls are looking for two possible scenarios to occur: 1. The economy grows organically or 2. The Fed continues (or increases) QE to help the economy grow. Barring some unforeseen negative event, both scenarios are bullish for stocks.

Mon-Wed’s Action: Valuations Still Within Reason

In the US, stocks were closed on Monday in observance of the President’s Day holiday. Over the weekend, the headline/lead story in Barron’s suggested 4% GDP growth for 2014. If that occurs, it would justify higher prices for stocks (that is a big “IF”). Even if it is less than 4%, valuations are still not horribly extended when compared to prior significant market tops. Right now, the S&P 500’s P/E is just over 17. In 1987, and in 2007, it was near 22. In 2000, it was over 29! Bottom line, we are moving in that direction but are not there just yet. Of course, this secondary as price action always comes first in our book.
On Tuesday, stocks opened mixed as traders returned from the long weekend. It is normal to see the market pause for a little to digest its recent (and robust) rally. Since the Feb 5 1737 low, the S&P 500 soared over 6% (>100) points and definitely deserves a breather up here.  Before Tuesday’s open, the Empire State manufacturing report missed estimates. Keep in mind over the next few weeks, we will likely see a flurry of weaker than expected economic data and much of it will be written off due to the weather. On Wednesday, stocks negatively reversed (opened higher but closed lower) as the market digested its latest and steep rally off the lows. Typically, a negative reversal- after an almost vertical rally- would signal a near term decline would follow. The decline lasted 1hr early Wednesday morning before the bulls showed up and quelled the bearish pressure. This illustrates how strong the bulls are right now. The S&P 500 futures were up for 11 days in a row and the $SOX (Philly Semiconductor index) rallied for 10 straight days. Additionally, by Friday’s close, the $SOX broke out of a very long 12 year base and hit its highest level since 2002!

Thurs-Fri’s Action: Stocks Are Strong

Stocks opened lower on Thursday but the bulls quickly showed up and promptly quelled the bearish pressure and sent stocks higher by the close. Shares of Facebook (FB) opened lower after the social media giant said they will acquire WhatsAPP for $19B but closed higher as buyers stepped up and sent prices to fresh record highs. Elsewhere, shares of Tesla (TSLA) soared to a new record high after the company smashed estimates. Stocks fell on Friday as a slew of options expired (caused the heavy volume).

Market Outlook: Uptrend Intact

The market is following our script perfectly. In late Jan/early Feb we wrote saying that this appears to be another normal (and healthy) pullback within a broader uptrend. That is exactly what occurred.  As always, keep your losses small and never argue with the tape.