That was fast, the one week, pullback ended after central banks stepped in and saved the day…Again. Just when stocks were getting in trouble, the Fed and other central banks, stepped in with more easy money. In the last full trading week of 2014, we saw the market enjoy its largest two day gain since 2011. That is a little concerning because during the prior week, we saw the market erased 5 weeks of gains and experience its largest decline in several years. This type of volatility, after a big move, is typically not a healthy sign. But most we are not in “normal” times as global central banks continue doing their best to artificially inflate asset prices. Typically, this ends badly, but until it does, we are not going to err on the long side and not fight the Fed (or other central banks). Interestingly enough last week, the S&P 500 fell 5.14% which is about an “average” pullback over the past few years. The table above illustrates the last few pullbacks and rallies in the S&P 500.

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.

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