Stocks ended the week higher after the bulls showed up and defended support. The big news came from China after the government stepped in and devalued their currency to stimulate their slowing economy. The major indices remain range-bound and continue trading in their middle of their 6-7 month sideways trading ranges.The important levels to watch in the S&P 500 are 2039 (support/floor) and 2134 (resistance/ceiling). By definition until either level is broken, we have to expect this sideways action to continue. The intermediate and longer term action remains bullish as the S&P 500 is less than 3% below its record high (even with all the “negative” headlines we have seen over the past few months. From where we sit, the primary driver of this very strong and aging 6.5 year bull market has been easy money from the Fed and other central banks and we don’t think the Fed will raise rates until the data improves markedly. That is the primary reason why we haven’t see a 10% correction in the S&P 500 in over three years! So far, even with rates at zero, economic activity, measured by GDP, continues to miss estimates and deflation remains more of a threat than inflation (the Fed’s dual mandate). Why would the Fed want to raise rates when neither one of its two mandates are being met? The Fed remains data dependent so we must remain data dependent as well. We would be remiss not to note that the major indices appear to be forming a large topping pattern. If support is broken, the top will be confirmed and odds favor lower prices will follow. Until that happens, we remain range-bound.
Monday-Wednesday’s Action: China Devalues Currency
Thursday-Friday’s Action: Stocks Turn Higher After Big Support Day
Market Outlook: A Major Top?
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is the primary driver of this entire 6.5 year bull market and when that ends, we want you to be ready. Until then, the market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market. Consider joining SarhanCapital.com.