STOCK MARKET COMMENTARY:
FRIDAY, MARCH 14, 2014
It was a tough week on Wall Street; The benchmark S&P 500 (SPX) negated its latest breakout (above), turned negative for the week and year, and closed just near its 50 dma line. In the past 6 weeks, from the Feb 5th low of 1737, the S&P 500 jumped a very impressive 8.4% and is now ~2% below its record high. Remember, in a normal (non QE) world, a 10% move for the entire year would be considered healthy. So +8.4% in 6 weeks is very powerful and speaks to how strong the bulls are right now. A little pullback should be welcomed, providing that it is shallow in size (% decline) an scope (days/weeks, not months). As we have been saying for weeks, “markets do not go straight up so be careful chasing stocks that have already had big moves up here. A better approach that has worked very well for us over the years is to buy weakness in uptrends, not just strength. In the short term, the market is clearly getting extended and a light volume pullback into the 50 dma line would do wonders to shake out the late-longs. Meanwhile, the intermediate and long term outlook remains very strong.” Trade accordingly.
MON-WED’S ACTION: Stocks Flirt With New Highs
Stocks opened lower on Monday after China released disappointing trade figures for February. China said its trade balance tanked from a surplus to a deficit of $22.98 billion (expected surplus of $14.50 billion). Exports plunged by -18.1% (expected +6.8%) which bodes poorly for the global economy. The report showed that imports rose by 10.1% (consensus +8.0%) which suggests their internal demand remains firm. Plunging exports spooked investors because China’s export data is used as a proxy for global economy growth. Some analysts tried to dismiss the big miss due to the Lunar New Year, which took place at the start of the month. I don’t buy it because that should disrupt both sides of the equation, not just one.
Stocks opened higher but closed lower on Tuesday causing the S&P 500 to close just above its short term 10 dma line. The big move came after Copper (JJC) prices plunged to the lowest level since 2010! For a long time copper has known as having a PhD in economics because it, and other industrial metals, are used to build stuff. So as the economy grew, demand for copper would grow.I would argue that the economy has evolved and economic growth is now more dependent on information/ideas than copper or other physical goods. Therefore, copper prices are important for the global economy, but just not as important as it once was.
Stocks opened lower but closed higher on Wednesday after the bulls showed up and defended the 21 DMA line- which is a common area of support during strong uptrends. Leaders from the EU and the US both publicly stated that they will stand with Ukraine, if Russia invades.
THURS & FRI’S ACTION: Market Sells-Off
Stocks opened higher on Thursday but quickly turned lower as fear spread regarding a potential war with Russia and the health of China’s economy. A report suggest that Russia fired on a Ukraine jet which spooked investors. In the US, the Commerce Department said retail sales rose by +0.3% in February after a -0.6% decline in January. January’s loss was bigger than initially reported. Both reports were largely written off due to the awful weather across much of the nation. Stocks fell on Friday as investors reduced their risk ahead of Sunday’s vote in Ukraine. As of Friday’s close, it was a foregone conclusion that the Republic of Crimea (the hot spot in Ukraine) will secede. The first question is whether or not they will join mother Russia (most likely outcome as of Friday’s close) or decide to become fully autonomous? The second question: what will the global response be (from both the International Community and Russia)? As always, stay tuned.
MARKET OUTLOOK: STRONG UPTREND
After an 8.4% rally in 6 weeks, the market is finally taking a breather. We will continue to monitor the health of this pullback to see if it is just another healthy pullback or turns into something more severe. 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.