Stocks fell last week as the major indices continue to move sideways to consolidate their very sharp late-August sell-off. The longer the major indices spend below their important 50 and 200 DMA lines, the weaker the market gets. A new downtrend began when the S&P 500 sliced below 2040 on August 20, 2015. Therefore, the bears remain in control until the S&P 500 trades back above 2040. To be clear, we expect this sloppy/sideways trading range to continue with resistance near 2020 and support for the S&P 500 near 1867. Janet Yellen and a slew of other Federal Reserve officials came out in recent days and completely changed their stance and said they will most likely raise rates rates in 2015. Clearly, the Fed is “market” dependent, not “data” dependent.
Monday-Wednesday’s Action: Stocks Go Nowhere Fast
Stocks rallied on Monday as oil prices jumped nearly 5%. A slew of healthcare and biotech stocks slumped after controversy spread that large price increases on certain drugs may hurt the group. The iShares Nasdaq biotechnology ETF ($IBB) briefly slid more than 5% on the day after encountering resistance at its 50 DMA line. Hillary Clinton tweeted that she will take on specialty pharma which also hurt the group. Atlanta Fed President – Dennis Lockhart said on Monday that the Federal Reserve’s decision to delay an interest rate increase last week was largely a “risk management” exercise to be sure recent market volatility would not become a drag on the U.S. economy. Lockhart said he still expects the Fed to raise rates this year. Several other Fed heads also came out in the last few days and made the case for a 2015 rate hike. It’s a joke because they voted 9-to-1 last week not to raise rates.
Stocks fell hard on Tuesday as sellers returns and sent stocks below a short uptrend line. The selling began early in the morning in Europe which put pressure on US futures. The selling continued all day and caused the major indices to break below a short upward trendline. Shares of Volkswagen plunged after a report showed the car marker cheated on their emissions test. VW set aside EUR 6.50 billion reserve in anticipation of costs associated with the Department of Justice probe into the company’s diesel engines. Stocks were relatively quiet on Wednesday as the Pope visited Washington D.C., China’s President XI spoke in Seattle and Martin Winterkorn resigned as Volkswagen CEO. In other news, Bill Gross, publicly told the Fed to “Get off zero, now” and complained that they hurting the economy, savers and investors.
Thursday-Friday’s Action: Yellen Signals 2015 Rate Hike & GDP Beats Estimates
Stocks opened lower on Thursday but closed near their highs as investors waited for Yellen’s latest speech and digested the latest round of mixed economic data. The Chicago Fed National Activity Index slid to -0.41, missing estimates for a gain of 0.51. Durable goods orders fell by 2% which matched estimates. Jobless claims held steady at 267k, beating estimates for 275k. Meanwhile, new home sales surged to 552k, beating estimates for 515k. After Thursday’s close, Janet Yellen changed her stance from a weekly earlier and said she believes the Fed should raise rates in 2015. Stocks ended mixed on Friday after the government said Q2 GDP rose by 3.9%, higher than the last reading of 3.7%. Biotechs continued to drag the market lower.
Market Outlook: A Bearish Wedge
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.