Strong Week on Wall Street

SPX- Bulls defend upward trendline and 50 dma line 4.29.13Stock Market Commentary:
Friday, April 26, 2013

We changed the status from rally under pressure to confirmed rally in our Tuesday 4/23/13 update and noted that the bulls are back in control of this market. So far, every pullback this year has been very small in both size (% decline) and scope (days, not weeks). As long as this healthy action continues we shall continue to err on the long side. As we have noted before the market bent but didn’t break…yet.

Monday-Wednesday’s Action: Bulls in Control

Last weekend, the G-20 did not denounce Japan’s massive trillion dollar stimulus plan which sent the Nikkei higher and the yen lower. European stocks rallied after Italy’s President Giorgio Napolitano was elected for a second term which helped allay further political concerns in the troubled continent. U.S. stocks rallied on Monday after Caterpillar (CAT) lowered guidance and existing home sales missed estimates. Existing home sales fell to 4.92M in March, down -0.6% according to the National Association of Realtors. 
 
Stocks rallied on Tuesday as a slew of weaker-than-expected economic data was announced across the globe. Overnight, China said its PMI Manufacturing Index fell to 52.0 which missed the Street’s estimate for 54.2. Euro-Area services and factory output fell for a 15th straight month in April. In the US, new home sales rose 1.5% to a seasonally adjusted annual rate of 417,000 units in March. The report showed that there were only 153k new homes on the market in March which was near a record low. Current supply stands at 4.4 months which is below the normal reading of six months.
 
Stocks were relatively quiet on Wednesday as investors digested a slew of economic and earnings data. Germany’s Ifo business confidence index for April slid to 104.4 from 106.7 in March, and missed the Street’s estimate of 106.2. In the US, durable goods orders fell by -5.7% in March which was worse than the Street’s estimate for a decline of -2.9%. Earnings news remains mixed with most stocks in the S&P 500 topping estimates (70% so far) but earnings are on track to fall -1.1% on a year over year basis. If this happens, this will be the first year-over-year decline since 2009.  Apple (AAPL) reported its first quarterly decline in earnings in 10 years. It is very important to note that the market knew this was going to happen as Apple topped out on September 21, 2012 long BEFORE earnings turned south (flat in Q4 and fell in Q1). (I published a special report: Apple & Netflix Case Study: Technicals Lead, Fundamentals Lag- read here

Thursday & Friday’s Action: Bulls in Control

Stocks rallied on Thursday after weekly jobless claims slid to 339,000 for the week ending April 20 which was lower than the Street’s estimate for a decline to 351,000. Stocks eased off their highs in the final hour of the session after a report in a German newspaper showed new concern about the euro. Bundesbank President Jens Weidmann sent a letter to Germany’s constitutional court criticizing the European Central Bank’s Outright Monetary Transactions. Before Friday’s open, futures were lower after the initial reading on Q4 GDP missed estimates. The U.S. economy grew at a 2.5% rate in Q1 which missed the Street’s 3.2% estimate.

Market Outlook: Confirmed Rally

It is important to note that the S&P 500 held its 50 DMA line almost to the penny in the middle of April on a closing basis which was a very healthy event. Elsewhere, The Nasdaq Composite, Nasdaq 100, Housing (XHB), Financials (XLF), Transports (IYT), Small (IWM) and Mid caps (MDY) are all back above their respective 50 DMA lines. For those of you that are new to our work, I keep track of the market status differently than other people. My goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae. Looking forward, this market looks strong as long as the benchmark S&P 500 holds above its 50 DMA line. As always, keep your losses small and never argue with the tape.

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