Stocks Soar; One Week Pullback Ends
Monday-Wed’s Action: Global Central Banks Save The Day…Again
Stocks negatively reversed (opened higher but closed lower) on Monday after early buying efforts dissipated by the afternoon. Crude oil remained front and center after it plunged over 5% intra-day and closed down -4.17% for the session. The big decline came after the UAE energy minister said, over the weekend, that OPEC would not cut production until crude fell below $40 and stayed there for at least three months. The damage from lower crude prices spilled over to emerging markets caused the Russian Ruble to hit a new record low against the US dollar. The Ruble actually plunged a whopping 10.22% against the greenback, which is an enormous sum! In an unprecedented step, the Russian Government halted trading in the Ruble to help stem the decline. Elsewhere, Brazil and Mexico’s stock markets both plunged over 3% after rumors spread that both countries may default on their debt.
Thurs & Fri’s Action: Stocks Surge In Last Full Week Of 2014
Stocks exploded higher on Thursday after more central banks jumped on board the easy money train. The Swiss National Bank (SNB) took its key policy rate into negative territory due to safe haven flows from Russia and similar actions from its neighbor, the European Central Bank (ECB). The SNB also said that it had intervened in the currency market and was prepared to immediately move again to defend the its currency. This was the largest two day gain since 2011.This came one week after the largest decline in over three years. This is something I’m watching closely because large swings (up and down) are typically not “healthy” for stocks. Stocks were relatively quiet on Friday as investors digested the recent move and a slew of options were set to expire.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. 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). Until material damage occurs, this market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.