Stocks fell last week causing the S&P 500 to pullback to its 50 DMA line and the small cap Russell 2000 to negate its latest breakout. Energy prices continued to implode last week as sellers remain in clear control. Separately, the US dollar soared to a 9 year high which put pressure on a slew of dollar denominated commodities and several currencies across the globe. Technically, the action is not ideal up here as volatility is definitely picking up.
Here are the final stats for 2014:

• Nasdaq Composite +13.4% YTD
• S&P 500 +11.4% YTD
• Dow Jones Industrial Average +7.5% YTD
• Russell 2000 +3.6% YTD

Monday-Wed’s Action: Russell 2000 Negates Breakout

Stocks rallied on Monday but closed in the middle of the range as buyers began to run out of steam- after a big move. The S&P 500 jumped over 6% in a little over a week and was way overdue for a little pullback to consolidate that move. The big news came from China & Greece. Chinese stocks continued to rally after the seismic move by the government on Dec 26, which was designed to stimulate the economy and free up a substantial amount of deposits. In Greece, their government was dissolved after the third round of presidential elections failed to elect Prime Minister Antonis Samaras’ choice. Snap elections are scheduled to be held on Jan 25.
Stocks fell on Tuesday as Trader’s prepared for the new year. China’s government made it easier for Chinese banks to hold foreign currencies without having to hold high levels of reserves, which would reduce the depreciation pressure on the yuan. U.S. economic data was less than thrilling. The December Conference Board consumer confidence index rose to 92.6, which just missed the estimate for 93.9. The S&P/Case Shiller index showed that home prices rose by 0.76% from the prior month, which beat the estimate for a gain of 0.4%. Compared to last year, home prices in 20 major metropolitan areas rose +4.5%, which barely beat the 4.4% forecast.
Stocks fell again on Wednesday which was the last trading day of 2014. Once again, China’s Central Bank (PBOC) made headlines when they said in a report that it will conduct “appropriately elastic” monetary policy in 2015. This basically means that the PBOC will continue to pursue very accommodative policies in an effort to help transition the Chinese economy to one that is driven by stronger consumer consumption. In the U.S., the Chicago purchasing manager index slid to 58.3 from 60.8 in November. This missed the forecast for 60 and a weaker-than-expected reading is not ideal. A separate report showed that pending home sales rose 0.8% in November which beat the 0.5% forecast.

Thurs & Fri’s Action: Stocks Fall In 2015

Stocks in the U.S. were closed on Thursday in observance of the New Year Holiday. Stocks ended mixed on Friday after buyers showed up and defended the S&P 500’s 50 DMA line (an important area of institutional support. The Institute for Supply Management’s manufacturing index came in at 55.5 last month, missing expectations for 57.6. December’s reading also missed November’s reading of 58.7. A separate report showed that construction spending slid -0.3% in November, versus a projected gain of +0.3%. The VIX (volatility index) has been trading in the mid to low teens for the past few years (on average) but briefly topped 20 on Friday.

Market Outlook: The Central Bank Put Is Alive And Well

Remember, in bull markets surprises happen to the upside. This has been the primary theme for the last 18 months. 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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