Monday-Wed’s Action: Stocks Hammered
Stocks fell for a third straight session on Monday as investors returned from the weekend still concerned regarding the overall health of the global economy and that Ebola is spreading in the western world. The Dow Jones Industrial Average erased its gains for the year and now joined the Russell 2000 in negative territory for 2014. The S&P 500 and Nasdaq are barely in positive territory. The S&P 500 sliced, and closed, below its 200 DMA line for the first time since November 2012! It also took out support of its large flat top pattern (1904)- Both are not healthy signs.
Thurs & Fri’s Action: Stocks Bounce After Fed Says “Easy Money” Here To Stay
Stock rallied on Thursday and Friday as the market bounced from deeply oversold levels. The market turned sharply higher after the Fed made it clear that they are willing to print more money if needed. Jim Bullard, St. Louis Fed President, told Bloomberg News that it might be necessary for the Fed to delay the ending of the asset purchase program (QE) due to the drop in inflation expectations. The comments sparked an immediate jump of 25 points in the S&P 500 (SPX) set the stage for Friday’s large rally. Stocks rallied hard on Friday but the S&P 500 failed to trade above resistance (formerly support). Going forward, the next level to watch is the 200 DMA line and the old chart lows of 1904.
Market Outlook: Bears Getting Stronger
We have been writing for weeks that the market is getting weaker, not stronger. That is exactly what has been happening. We have also noted that the bull market is aging and is now in the process of forming a large topping pattern. At this point, the bulls are not going down without a fight. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which means that each day we get closer to that correction, not farther away from it. Remember a 10% decline from the recent high of 2019 would bring the S&P 500 down to 1817. The low last week was 1820. As always, keep your losses small and never argue with the tape.