Bulls Still In Control
Stocks paused last week helping the S&P 500 form a bullish “handle” pattern. Overall the action remains very healthy on Wall Street as stocks refuse to pullback even as geopolitical tensions flare up across the globe. The light pullback we are seeing is also healthy as it allows the market a chance to pause and consolidate the recent and very strong two month rally (after successfully retesting Aug’s low). Remember, we are in a bull market and the fact that stocks refuse to fall (even on bearish news: terror attacks, talk of World War III, lousy economic data, negative Q3 earnings comps, etc) reaffirms the view that weakness should be bought. Remember, it’s not the news that matters but how the market reacts to the news. At this point, the market is still range-bound as the S&P 500 is barely positive for the year. In the short term, support is the 50 DMA line and then Aug’s low while resistance is 2116 and then 2134. Until 1867 (important support) or 2134 (important resistance) is broken, by definition, we have to expect this sloppy/choppy action to continue. 2011 the S&P 500 was “flat” for the entire year and that set the stage for a strong 2012-2015. The big difference between 2015 and 2011 is that we are now 6.75 years into this bull market and in 2011 the bull market was only two years old. So far, all that matters is the free money that is sloshing around the world from global central banks. As long as stocks react well to the Free/Easy money, we do not want to fight this very strong tape.
Monday-Tuesday’s Action: Stocks Pause Ahead of Thanksgiving
Stocks slid on Monday on the first day of the shortened holiday week. Overall it was relatively quiet session on Wall Street as investors paused to digest the prior week’s strong rally. Crude oil traded higher but almost immediately sold off after Saudi officials said they want to stabilize the global energy market. Shares of Game Stop ($GME) gapped down after the company reported earnings. In other news, Pfizer ($PFE) announced plans to buy Allergan ($AGN) in order to pay a lower tax rate. The deal was the largest tax inversion of the year, with a total value near $160B! Economic data was light, Existing Home Sales slid -3.4% from September to an annualized rate of 5.36 million units, missing estimates for 5.50 million. Most notably, sales did not grow in any region in the country. The big problem here is that rates are at zero and the housing market has plateaued. That raises the question, what will happen if/when the Fed actually raises rates?
Stocks edged higher on Tuesday after Turkey shot down a Russian fighter jet, which allegedly violated Turkish airspace on the country’s border with Syria. Tensions flared between the two nations and this was the first time a NATO member shot down a Russian plane since the 1950s. The Russian defense ministry called the incident a “hostile act” and Russian President Vladimir Putin terminated all Russian military cooperation with Turkey. Mr. Putin denied the incursion into Turkey, saying the action represented “backstabbing by accomplices of terrorists” and that it “goes beyond [the] fight against terror.” In a testament to how strong this bull market is, stocks in the U.S. edged higher on the news. Economic data was mixed. The second estimate for Q3 GDP came in at 2.1%, matching estimates. It was higher than last month’s initial reading of 1.5%. The S&P Case Shiller-Index rose 0.6%, beating estimates for 0.3%. U.S. consumer confidence slid fell almost 10% to 90.4, missing estimates for 99.6. The Richmond Fed Manufacturing index fell to negative -3, missing estimates for 1.
Wed-Friday’s Action: Stocks Consolidate Recent Gain During Shortened Holiday Week
Stocks were quiet on Wednesday as investors digested a spate of economic data. Mortgage applications fell by -3.2%, which was much lower than the prior week’s reading of +6.2%. Durable goods orders rose by 3%, beating estimates for 1.5%. Jobless claims came in at 260, easily beating the 270k estimate. The FHFA house price index rose by 0.8%, beating estimates for 0.4%. The PMI Flash Services index came in at 56.5, better than the Street’s forecast for 55. Meanwhile, new home sales came in at 495k, which fell a little shy of the Street’s estimate for 499k. Consumer sentiment also missed estimates and came in at 91.3, lower than the 93.1 forecast. U.S. stocks were closed on Thursday for Thanksgiving and closed early in a relatively quiet session on Black Friday. Chinese stocks plunged over 5% after the government announced more regulations against brokerage firms and the latest round of economic data disappointed.
Market Outlook: Aging Bull Market
This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2016. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but for now the bulls remain in control. 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 – Join FindLeadingStocks.com.