STOCK MARKET COMMENTARY:
FRIDAY, MARCH 28, 2014

This has been a very “busy” month for stocks as the market digested a slew of negative headlines (Russia, China, Yellen, etc) and a ton of heavy selling in biotechs, momentum, and growth land. Monday is the last trading day of the month and quarter. So far, the S&P 500 (SPX) is up marginally for the year as it remains perched below record highs. If you step back and listen to the market- (chart above) the benchmark S&P 500 is acting perfectly fine as it builds a new 5-week flat base below record highs. It is perfectly normal to see the market “rest” up here as it consolidates last year’s very strong 29% rally. In addition, volume patterns remain healthy on a weekly basis which suggests we are moving higher, not lower from here.

MON-WED’S ACTION: SPX Flirts With 1850 Area

On Monday, the market was dragged lower by growth stocks, with extra emphasis on biotechs (IBB). A slew of growth stocks were smacked causing the Nasdaq composite and Nasdaq 100 to break below their respective 50 DMA lines. Shares of FB, YELP, GOOG, PCLN, NFLX, AMZN, TSLA, JAZZ, CELG, BIIB, to name a few were all hit as investors dumped growth and moved into other areas of the market. The G7 met in The Hague and issued a joint statement, saying they are suspending their participation in the G8 until “Russia changes course.”
Stocks rebounded nicely on Tuesday after the S&P 500 defended the 1850 area (prior chart highs) and consumer confidence hit a six-year high in March. The Conference Board said consumer confidence rose to 82.3 in March. Separately, the latest housing data was mixed. The Commerce Department said new home sales slid -3.3% in February (largely due to the weather) and the S&P/Case-Shiller index said home prices in 20 cities rose 13.2% from January 2013. Federal Reserve Bank of Philadelphia President Charles Plosser told CNBC that Fed members found were surprised by the market’s reaction to recent policy statements, saying they tried to say quite explicitly that the central bank’s view had not changed.
Stocks opened higher on Wednesday after durable goods beat estimates and rose by 2.2%. The beat was largely due to a strong rebound in the transportation sector. Social media giant Facebook (FB) opened lower after announcing a deal to acquire Oculus VR, which makes virtual-reality headsets. Separately, King Digital Entertainment (KING) declined in its first day as a publicly traded company which is known for making the highly popular mobile game “Candy Crush.”

THURS & FRI’S ACTION: Time For A Bounce?

On Thursday, stocks opened lower but closed near their intraday highs as sellers appeared to be exhausted in the near term. Many areas of the market that were getting hit the hardest, positively reversed, and closed higher on the day. Typically, that means a near term bounce is in the cards. Economic data was mixed. The government said, Q4 GDP was revised up to 2.6% in the third estimate from 2.4%. That was inline with the Street, but was down from a +4.1% gain in Q3 2013. The Labor Department said initial jobless claims fell to 311k for the week ending March 22 from an upwardly revised 321k, easily beating estimates for an increase to 330k. Remember, lower jobless claims are actually healthy for the jobs market. Finally, pending home sales slid in February by -0.8%, which was worse than the 0.2% decrease expected on Wall Street. Stocks were quiet on Friday after consumer spending and personal income rose by +0.3% in February.

MARKET OUTLOOK: New 5-Week Flat Base Forms

It has been very impressive to see the major averages hold up as well as they have considering how bad the sell-off has been in the areas mentioned above. Looking forward, the S&P 500 is trading in a new 5-week flat base with support near 1834 and resistance near 1884. Until either level is breached, one should expect the sideways action to continue. As we have said several times in the past, “At this point, more damaging evidence is needed before the bull market breaths its last breathe.”  As always, keep your losses small and never argue with the tape.