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). Remember, that has been the primary driver of this entire 6.5 year bull market and the Fed knows Main Street is simply not ready for a rate hike at this juncture. We have argued for quite some time that the Fed is not going to raise rates but that doesn’t matter. What does matter is the market’s perception and many people were thinking the Fed may raise rates in the near future. Friday’s disappointing jobs report coupled with the spate of lackluster economic data changed that “perception.” In life, and in markets, perception is reality. At this point, there is still a lot of technical damage on the charts but the markets are very oversold and due to bounce. The bears remain in control as long as the S&P 500 continues trading below 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.
Monday-Wednesday’s Action: S&P 500 Tests Aug’s Lows; Russell Breaks Below
Stocks were clobbered on Monday after fear spread regarding the global economy. Shares of Glencore ($GLCNF) continued to plunge alongside of other commodity-sensitive stocks. Asian markets closed mixed on Monday as data from China showed industrial profits slid 8.7% in August from a year earlier. That was the largest drop since 2011.
In the U.S., pending home sales for August fell by -1.5%, missing estimates for a 0.5% gain and the Dallas Fed Manufacturing survey plunged to -9.5, missing estimates for -9. In other news, Christine Lagarde, head of the International Monetary Fund (IMF), said the IMF’s forecast for global growth of 3.3% this year and 3.8% next year are no longer realistic due principally to the weakness in emerging markets. Finally, legendary investor Carl Icahn said there could be another financial catastrophe looming.
Stocks tried to bounce on Tuesday but sellers showed up and quelled the bulls’ efforts. The S&P Case-Shiller home price index fell -0.2%, missing estimates for a +0.1% gain. the State Street Investor Confidence Index rose to a 116.6 in September after an upwardly revised 109.4 in August. India’s central bank cut interest rates by 50 basis points to 6.75%, a move predicted by only 1 of 52 economists surveyed by Bloomberg. Separately, Indian authorities relaxed rules on foreign ownership of its debt in an attempt to attract foreign capital. India is one of Asia’s strongest performing bond markets.
Stocks rallied nearly 2% on Wednesday on the final day of the month and quarter. Q3 2015 was the weakest quarter for stocks in four years and had the largest single day point decline (8.28.15) in history. The S&P 500 fell -6.9% in Q3, which was its worst performance since the -14.3% shellacking in Q3 of 2011. The Nasdaq fell 7.34%, the Dow Industrials slid 7.58% and the small-cap Russell 2000 led the way lower, falling 12.28%. In other news, ADP said private U.S. employers added 200k new jobs in September, matching estimates. The big miss came from the Chicago PMI which fell to 48.7, missing estimates for 53.6 and below the boom/bust level of 50.
Thursday-Friday’s Action: Jobs Good For Wall Street, Not Main Street
Futures were pointing to a strong open on Thursday but sellers showed up right after the open and sent stocks lower after the S&P 500 and the DJIA failed near their downward slopping 10 DMA lines. Before Friday’s open, the Labor Department said U.S. employers added 142k, new jobs in September, missing estimates for 202k. To make matters worse, the government downwardly revised its reading for August and July. Stocks opened sharply lower on the news but buyers showed up and sent stocks higher after the initial negativity passed. The big miss in September’s jobs report pushed back any chance for an October rate hike from the Fed which means the #EasyMoney party continues…for now. The data supports our thesis that Main Street is simply not ready for a rate hike – even though Wall Street is.
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.