The major averages soared last week helping the benchmark S&P 500 index soar a whopping +8% in only 8 trading sessions! That is a huge move and speaks volumes to how strong the bulls are right now. Remember, in a non-QE world, a 10% annual rally was considered decent. So 8% in 8 days is very impressive. The small cap Russell 2000 led the way and was the first popular index to bottom on 10/15/14. 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). 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) and that bodes well for the bulls. The trigger that sparked the huge rally was when several Fed heads came out and said they are willing to extend QE (if needed) and made it clear that the Fed Put is alive and well (meaning more QE is ready, if needed).

Monday-Wed’s Action: Stocks Bounce Hard

Stocks rallied on Monday helping the S&P 500 rally into its 200 DMA line. Consumer staples led the way higher followed by utilities and materials. Interestingly, the S&P 500 closed at 1904 or support of its large topping pattern. After the close, Apple Inc. (AAPL) blowout analyst estimates and reported another blowout quarter. In a surprising turn of events, the company did not lower guidance for future quarters which is their standard modus operandi around earnings. The company has a long history of reporting a stellar quarter but lowering guidance. Then blowing past guidance when they report in future quarters…but lowering guidance every time.

Thurs & Fri’s Action: Bulls Remain In Control

Stocks edged higher on Thursday after healthy economic and earnings data was announced from China, Europe and Caterpillar Inc (CAT). The preliminary October manufacturing PMI’s for China and the eurozone came in better than expected. The HSBC gauge for China manufacturing rose to 50.4 from 50.2, matching estimates. Eurozone manufacturing remained in expansionary territory at 50.7 (versus last month’s 50.3) and the central engine of growth, Germany, which had been a cause for concern to market participants lately, jumped up to 51.8 from 49.9. All this helped allay fears of a global economic slowdown. Stocks sold off before the close after a report showed that NYC experienced its first case of Ebola. After Thursday’s close, it was confirmed that a NYC doctor contracted Ebola in West Africa and was being treated for the disease. Stocks rallied on Friday as investors digested the recent and very strong rally.

Market Outlook: Bears Getting Stronger

Remember, in bull markets surprises happen to the upside. We have also noted that the bull market is aging and may be 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.
 

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