Stocks Finally Pullback, Now What?

The market is finally pulling back to consolidate its very healthy and very strong advance. Remember, markets do not go up forever and it is perfectly normal (and healthy) to see the market pullback after a very strong rally to consolidate the move. Nice orderly pullbacks are healthy and allow savvy investors to step in and buy (when the weak hands are selling). Separately, it is important to note that 200-500 point daily swings are the new “normal” for the Dow. Historically, the market can easily move 1-2% on any given day (up or down) without blinking an eye. Now, that the Dow is trading near 25k, a 1% move equals 250 points. So a 200-500 point move is not as “severe” as it used to be when it represented a move greater than 2%. Right now, the market is in “pullback mode” and I expect that to continue until the major indices trade near their respective 50 DMA lines. That is the next important level of support to watch. Ideally, for the bulls, the market will pull into the 50 DMA line, sit for a little, then move higher again.   

Mon-Wed Action:

Thur & Fri Action:

Stocks were quiet on Thursday as investors waited for Apple, Google, and Amazon to report earnings after Thursday’s close. Apple and Google fell while Amazon rallied after earnings. Before Friday’s open, the government said U.S. employers added 200k new jobs in January, beating the Street’s estimate for 175k. A stronger than expected jobs report strengthens the case for the Federal Reserve to raise rates which spooked investors. At one point, the Dow fell 665 points as the market continued pulling back from one of the most extended/overbought conditions in history! In last week’s report, I pointed out that the Dow was 2,000 points above its 50 DMA line and 4,000 points above its 200 DMA line. At this point, the best thing the market can do is pullback into its 50 DMA line.

Market Outlook: Bulls Are Strong

The bulls are back in control and the market remains very strong. As always, keep your losses small and never argue with the tape. Hit A Wall? Want To Achieve More Goals? We Can Help.
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