Week In Review: Bulls Not Going Down Without A Fight

Byinfo@50park.com

SPX- Support Becomes ResistanceOversold Bounce Finally Arrives

The major averages opened the week lower but closed the week near their highs which signals a near-term low may be in place. The small-cap Russell 2000 continues to lead the other popular indexes, both up and down. The RUT actually closed higher for the week and is back above 1082 which was support of its latest base. This is a healthy sign and signals the bulls are doing their best to regain control of this market. For weeks, we have told you that our primary concern is what happens when QE 3 ends. Since the March 2009 bottom, the benchmark S&P 500 (SPX) soared when QE has been in effect and fell -17% when QE 1 ended and fell -22% when QE 2 ended. It will be very interesting to see how the market reacts when QE 3 officially ends later this month (unless the Fed decides to extend QE). Since September 15, a slew of leading stocks, and the major averages, have been acting somewhat sloppy (erratic price swings). Even with all the selling and outright ugly action we have seen in recent weeks, at its lowest, the S&P 500 only pulled back -9.86%, just missing the closely watched -10% decline (which defines a correction) which bodes well for the bulls.

Monday-Wed’s Action: Stocks Hammered

Stocks fell for a third straight session on Monday as investors returned from the weekend still concerned regarding the overall health of the global economy and that Ebola is spreading in the western world. The Dow Jones Industrial Average erased its gains for the year and now joined the Russell 2000 in negative territory for 2014. The S&P 500 and Nasdaq are barely in positive territory. The S&P 500 sliced, and closed, below its 200 DMA line for the first time since November 2012! It also took out support of its large flat top pattern (1904)- Both are not healthy signs.

Stocks fell in heavy trade on Tuesday as energy prices continued to implode and ebola related fear continued to spread. After Tuesday’s close, Intel (INTC) and CSX (CSX) were among two well-known companies that beat estimates. The fear index (a.ka. The VIX) continued to surge as stocks were hit hard. Volatility surged as stocks fell which is typically not a healthy sign.
On Wednesday, stocks opened in what felt like an almost panic-low sending S&P 500 futures in a 68 point range (2x-3x larger than normal).  At one point on Wednesday, the S&P 500 and Nasdaq 100 erased their gains for the year and the small-cap Russell 2000 continued to get hammered. Retail sales slid by -0.3% in September which missed estimates for a decline of -0.1%. The decline was largely due to falling gasoline prices. At one point the DJIA was down more than 400 points (a very large amount for a single trading day) and then the bulls showed up and started buying stocks. By the end of the day, the Russell 2000 actually closed higher and the other popular averages closed near their respective highs. As long as Wednesday’s lows are defended one should expect this “bounce” to continue.

Thurs & Fri’s Action: Stocks Bounce After Fed Says “Easy Money” Here To Stay

Stock rallied on Thursday and Friday as the market bounced from deeply oversold levels. The market turned sharply higher after the Fed made it clear that they are willing to print more money if needed. Jim Bullard, St. Louis Fed President, told Bloomberg News that it might be necessary for the Fed to delay the ending of the asset purchase program (QE) due to the drop in inflation expectations. The comments sparked an immediate jump of 25 points in the S&P 500 (SPX) set the stage for Friday’s large rally. Stocks rallied hard on Friday but the S&P 500 failed to trade above resistance (formerly support). Going forward, the next level to watch is the 200 DMA line and the old chart lows of 1904.

Market Outlook: Bears Getting Stronger

We have been writing for weeks that the market is getting weaker, not stronger. That is exactly what has been happening. We have also noted that the bull market is aging and is now in the process of forming a large topping pattern. At this point, the bulls are not going down without a fight. 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). Furthermore, the S&P 500 has not experienced a 10% correction since 2012 which means that each day we get closer to that correction, not farther away from it. Remember a 10% decline from the recent high of 2019 would bring the S&P 500 down to 1817. The low last week was 1820. As always, keep your losses small and never argue with the tape.

Similar Posts

  • Investors Digest A Flurry of Economic Data

    Byinfo@50park.com

    Thursday, March 4, 2010 Market Commentary: Stocks traded between positive and negative territory and closed higher as investors digested the latest round of economic data. Volume, a critical gauge of institutional demand, was reported lower than the prior session on the Nasdaq exchange and on the NYSE. Advancers led decliners by a 11-to-8 ratio on the NYSE…

  • Stocks End Holiday Week Higher

    Byinfo@50park.com

    Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. It was encouraging to see a flurry of high-ranked leaders trigger fresh technical buy signals and break out of sound bases in recent sessions. The next important level to watch for the major averages are their respective 200-day moving average (DMA) lines. It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly

  • U.S. Stocks; Forming A New Base

    Byinfo@50park.com

    Mortgage Apps Fall & Produce Price Index Jumps!
    Before Wednesday’s open, the Mortgage Bankers Association (MBA) said mortgage applications slid by a disturbingly large -9.1%. The report blamed tepid economic conditions and a volatile stock market for the two primary reasons behind the large decline. Separately, the Labor Department said its produce price index (PPI) rose +0.2% despite lower energy prices. Core prices, which exclude food and energy, rose +0.4% which was the largest increase since January and rose +0.3% in June. Since the March 2009 bottom, inflation has remained largely at bay which has helped alleviate pressure on the Federal Reserve to raise rates. However, if inflation swells over the next few quarters than the Fed may be put in a precarious situation; raise rates to curb inflation or leave rates low to stimulate the stale economy?

  • Lousy Week For Stocks

    Byinfo@50park.com

    Friday, July 15, 2011
    Stock Market Commentary:
    Stocks ended lower for the week but managed to stay near their respective 50 DMA lines which is an encouraging sign. The benchmark S&P 500 index sliced and closed below its 50 DMA line on Thursday which is not ideal. Meanwhile, the Dow Jones Industrial Average and the tech heavy Nasdaq composite managed to stay above their respective 50 DMA lines. Once all the major averages violate their respective 50 DMA lines, the rally will end and the bears will have regained control of this market. Looking forward, the next level of resistance is their respective 2011 highs.
    Monday- Wednesday’s Action: Stocks Slide On Debt Woes
    Over the weekend, fresh debt concerns surfaced from the U.S. and Europe which put pressure on stocks and a slew of commodities. In Europe, an emergency session was held to discuss Italy’s mounting debt woes. Before Tuesday’s open, the euro was smacked as fresh debt woes surfaced throughout Europe and the debt/deficit situation in the U.S. remains unresolved. Euro zone finance ministers promised a more flexible approach to deal with Greece and other troubled nations. However, markets across the world did not believe their rhetoric. A newspaper report showed that six Spanish banks failed the EU stress tests which are slated to be released on Friday. Elsewhere, the U.S. trade deficit soared to a 3 year high in May thanks in part to lower exports. The Commerce Department said the deficit surged +15.1% to +50.2 billion in May which is the largest imbalance since October 2008.
    At 2pm EST, the minutes of the Federal Reserve’s June meeting were released and showed that Fed officials did not rule out QE3. Stocks sold off after a short-lived initial bounce on the news. Shortly after the Fed minutes were released, Moody’s rating agency downgraded Ireland’s debt rating to junk which sent stocks lower. Finally, Alcoa (AA) officially kicked off earnings season after Monday’s close when they released their Q2 results. Needless to say, it will be interesting to see how the major averages react to earnings over the next few weeks.
    Before Wednesday’s open, China said its gross domestic product (GDP) slowed to a rather strong +9.5% last quarter. This was slightly lower than Q1′s strong reading of +9.7% but slightly higher than the Street’s +9.4% expectation. It is important to note that Beijing has been rather vocal in their attempts to curb inflation and their red-hot economy. In the U.S., Ben Bernanke made it abundantly clear that the Fed is willing to step up and ease monetary policy (i.e. QE 3) again, “if needed.” This sent the dollar lower and a slew of dollar denominated assets (i.e. risk assets) higher. On a rather sad note, a series of bombs rocked the financial district of Mumbai, killing at least 21 people and injuring 141 in what most believe to a terrorist attack.
    Thursday & Friday’s Action: 50 DMA line Is Support!
    On Thursday, investors digested a slew of economic data, most of which topped estimates. The Labor Department said, weekly jobless claims fell -22,000 to 405,000 last week which is much closer than to the closely followed 400,000 mark. The latest read on inflation was tame which helped ease pressure on the Fed to raise rates in the near future. The producer price index (PPI) fell -0.4% which was below the -0.3% forecast.
    Retail sales rose +0.1% which topped the unchanged reading expected by Wall Street. Bernanke spent most of his day testifying on Capital Hill where he made it clear that he was not immediately ready to embark on QE 3. Stocks immediately sold off on the news. The pressure in D.C. is palpable regarding the ongoing debt/deficit talks. The President knows that the country is at a critical juncture and if this issue is not resolved swiftly the ramifications will be ominous, it will tarnish his legacy, and most likely cost him a second term in office. After Thursday’s close, Google (GOOG) surged over 10% after smashing Q2 estimates which bodes well for Q2 earnings season.
    Before Friday’s open, Citigroup (C) reported stronger than expected Q2 results which bodes well for the ailing financial sector. Economic data was mixed. The consumer price index (CPI) slid -0.2% which matched the Street’s estimate. Core CPI, which excludes food and energy, rose +0.25%. Elsewhere, the Empire State Manufacturing Index fell -3.76 last month which fell short of the Street’s estimates and consumer confidence tanked to the lowest level since March 2009!
    Market Outlook- Uptrend Under Pressure:
    The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the current rally is under pressure as investors patiently await earnings season and continue to digest the latest economic data. Until all the major averages violate their respective 50 DMA lines on a closing basis, the market deserves the bullish benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.
    Stock Market Research?
    Global Macro Research?
    Want To Follow Trends?
    Learn How We Can Help You!

  • Stocks Fall; Gold Hits Record High!

    Byinfo@50park.com

    The action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong. Looking forward, the window is open for disciplined investors to carefully buy high-ranked stocks, while many pundits are expecting that markets may consolidate following recent gains. It was very encouraging to see the major averages and several leading stocks break above stubborn resistance levels and continue marching higher. All the major averages had recently rallied above their respective 200-day moving average (DMA) lines, a clear sign that the overall market is in healthier shape. Now that the summer highs have been exceeded, the next important resistance levels for the major averages are their respective April highs.