Week In Review: Geopolitical Tensions Rattle Markets

Byinfo@50park.com

MArket Finally Pulls back 06.13.14

The market finally pulled back which is healthy as it gives the bulls a chance to pause and digest the recent gain. As previously mentioned, the market was extended and way over due for a pull back so this action should not catch our readers off guard. So far this pullback is healthy and it is important to now analyze the health of this pullback. The major averages were very extended above their respective 50 DMA lines and prio chart highs. The bulls now want to see a quiet pullback before beginning a new leg higher. Separately, it is easy to get caught up in the latest (negative) headline du jour- careful falling into this trap because that tends to distract people from remaining objective and analyzing facts (price action), not opinions. The market pulled back last week because it was over bought-latest negative geopolitical headline(s) aside.

MON-WEd: STOCKS Ease From Record Highs

Stocks were relatively quiet on Monday as investors digested the prior week’s strong rally. The Fed’s Plosser said, “If economy improves as forecast, current taper pace may be too slow.” In corporate news, Family Dollar Stores (FDO) rallied after Carl Icahn reported a 9.39$ stake in the company, making Mr. Icahn the largest shareholder in the company. Elsewhere, Netflix (NFLX) slid its shareholders voted against splitting the online entertainment company’s chairman and CEO roles.
Stocks were quiet to slightly lower on Tuesday as investors paused to digest the Market’s recent gain. The National Federation of Independent Business said small businesses were the most optimistic about the economy since September 2007. Still, the NFIB cautioned the reading remained well below those that typically occur with strong economic expansion.
The selling began on Wednesday as a flurry of geopolitical woes flared up across the globe. Insurgents in Iraq toppled the security forces and overtook several key cities. The turmoil sent stocks lower and gold/crude oil higher. Separately, news spread that Russian tanks crossed the border and entered Ukraine which added to the already tense geopolitical landscape.

THURS-FRI: Geopolitical Woes Hurt Stocks 

Stocks fell in heavy volume on Thursday as geopolitical woes intensified and rumors spread that Iran would enter the mix to combat insurgents in Iraq. The market was dragged lower by many sectors, mainly weakness in transportation and small-cap stocks. Even with all the negative headlines it is impressive to see the S&P 500 only fall 0.6%. Stocks bounced on Friday as inflation measures remained at bay as producer prices fell in May and turmoil continued in Iraq. CNBC reported: “Al Qaeda-linked insurgents who overran large parts of the north of the country earlier this week also seized about $450 million during a bank heist, Mosul Mayor Athier Nujaifi told NBC News. That makes the Islamic State of Iraq and al-Sham (ISIS) the world’s richest terrorist group.” Lovely, I know. 

MARKET OUTLOOK: Patience Is King

The long awaited pullback is finally upon us which is healthy because it gives the market a chance to digest its recent (and strong) gain. It also sets the stage for a new leg higher to commence. At this point, it is important to analyze the health of the pullback before making another move. Keep in mind that this 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) but until we see signs of distribution (heavy selling) the market deserves the bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.

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    On Tap This Week:
    MONDAY: Industrial production, Fed’s Lacker and Evans speak; Earnings from IBM
    TUESDAY: PPI, treasury international capital, housing market index, Bernanke speaks; Earnings from BofA, Coca-Cola, Goldman Sachs, J&J, Apple, Intel, CSX and Yahoo
    WEDNESDAY: Weekly mortgage apps, CPI, housing starts, Fed’s Rosengren speaks, oil inventories, Fed’s Beige Book; Earnings from Morgan Stanley, Travelers, United Tech, AmEx, Ebay, Western Digital
    THURSDAY: Jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, Fed’s Bullard and Kocherlakota speak, NewsCorp investor day; Earnings from AT&T, Eli Lilly, Nokia, AutoNation, Microsoft, Capital One, Chipotle and SanDisk
    FRIDAY: Fed’s Kocherlakota speaks, 2011 Dodd-Frank Rulemaking Deadline; Earnings from GE, McDonald’s, Verizon, Honeywell and Schlumberger
    Source: CNBC.com