Stocks Finally Pullback

It was an ugly week on Wall Street as the bears returned from a short six week hiatus. Stocks fell hard last week, erased the last three weeks worth of gains, fell over 3.5%, and snapped a 6-week win streak. It was the largest weekly decline for stocks since August and the action suggests the bears are getting stronger, once again. Last week we wrote, “The S&P 500 has rallied for six straight weeks and remains very extended to the upside. The major indices opened higher but closed in the lower half of their weekly ranges which is normally a sign of short term fatigue. The market is way overdue to pullback and the key going forward is to analyze the health of that pullback.” At this point, this is not a “healthy” pullback and the only chance the bulls have is to defend the 50 DMA line for the S&P 500, Nasdaq and Dow Jones Industrial Average. If that level is breached, we expect the market to test- and then take out August’s low. To be clear, until the action improves, this is the time for defense, not offence. The big news last week came from retailers. A slew of high profile retail stocks plunged after reporting crummy numbers and slashing guidance. Clearly, this bodes poorly for the Q4 holiday shopping season.

Monday-Wednesday’s Action: Stocks Fall

Stocks fell hard on Monday as global economic woes hurt stocks. China’s said exports fell -6.9% in October, missed estimates and was the fourth consecutive monthly drop. Remember, China is an export based economy so the fact that exports are down clearly illustrates tepid demand from the rest of the world (global economy). In other news, the organization of economic cooperation and development (OECD) cut their forecast for global growth again, reflecting a weak demand. Shares of Priceline Group ($PCLN) gapped down $138, after reporting Q3 results.
Stocks ended mixed on Tuesday after shares of Apple Inc (AAPL) fell over 3%. Credit-Suisse ($CS) published a report that indicated the tech giant has cut its orders for iPhone 6s components by as much as 10%. This dragged a slew of other Apple suppliers lower on the news. ($CRUS, $BRCM, $AVGO, $SWKS, etc). Export prices, excluding agriculture, fell by 0.3% in October after sliding by 0.5% (revised from -0.6%) in the prior reading. Wholesale inventories rose by 0.5% in September after an upwardly revised 0.3% increase (from 0.1%) for August.
Stocks were quiet on Wednesday as the bond market was closed in observance of the Veteran’s Day Holiday. Overnight, economic data from China was mixed. Industrial output grew by +5.6%, the slowest growth since 2008 which missed estimates for +5.8%. It was also slower than last month’s reading of 5.7%.In the U.S., The big news came from Macy’s ($M). The stock gapped down over 15% at one point after reporting Q3 results and lowering earnings and sales guidance. Last month, shares of Wal-Mart ($WMT) plunged after the largest retailer in the world lowered guidance as well. Other retailers are also under-performing as shares of Men’s Wearhouse (MW) plunged nearly 70% since June!

Thursday-Friday’s Action: Sellers Remain In Control

Stocks fell hard on Thursday which was the first day of heavy selling on Wall Street since September. The head of the European Central Bank, Mario Draghi, said he’s prepared to increase QE  (print more money) at their December meeting. A slew of Fed officials spoke and largely reiterated their recent stance that they are reading to raise rates if the data improves. Stocks fell hard on Friday after more retailers reported disconcerting news. Shares of Nordstrom (JWN), Fossil Group ($FOSL) and Party City ($PRTY) all gapped down after reporting crummy numbers and lowering guidance. U.S. retail sales missed estimates which confirmed what these larger retailers have been telling us for months, the consumer is weak.

Market Outlook: Aging Bull Market

This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2015. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but for now the bulls remain in control. 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.