Stocks snapped a three week losing streak and rallied after another volatile week on Wall Street. On Monday, stocks rallied 200 points only to give it back and fall 200 points on Tuesday. The market was up and down on Wednesday before falling hard early Thursday morning and breaking key levels of support. Then, the bulls showed up and stocks closed near their highs on Thursday and gapped up on Friday. If that wasn’t enough for you, each day big money piled into one or two sectors which defined the day. On Monday it was the biotechs, Tuesday the transports, Wednesday the financials, Thursday the market was down, and the semiconductors led the market higher on Friday. Welcome to my world, Don’t you just love this market. After all was said and done- the S&P 500 and Dow are trading near their respective 50 DMA lines (resistance) and the 150-200 DMA lines are now important support. If the 50 DMA line becomes resistance the market could easily roll over and fall from here. We also want to note that Steel stocks ($SLX) which led on the way up in Jan/Feb have plunged over the past three weeks – and could lead the market lower if other areas start falling. Without another wave of selling, the market looks like it wants to bounce from here.
Stocks rallied nicely on Monday as investors showed up and defended key levels of support (50 DMA line) for the Dow Jones Industrial Average, the S&P 500 and several other important sectors. Overnight, China said industrial production, retail sales and investment data all missed estimates. China also said that measures of money creation and credit growth also came in below estimates. Separately, in his quarterly filings, Warren Buffet said he bought $1 billion of Apple (average price $102) in Q1 2015.
Stocks ended lower on Tuesday as investors continue to digest the latest round of economic and earnings data. On the economic front, the consumer price index (CPI) rose to 0.4%, beating estimates for 0.3%. That was the highest increase since 2013 and was the first real sign that inflation may be increasing. If inflation accelerates from here, that may put pressure on the Fed to raise rates at some distant point in the future. A separate report showed that housing starts picked up at a moderate pace in April and rose to 1.172M, beating estimates for 1.135M. Meanwhile, earnings failed to impress as Home Depot (HD) fell after reporting Q1 results.
On Wednesday, stocks were higher but closed near the lows of the day after the Fed released the minutes of its latest meeting. The minutes showed the Fed would entertain a potential June rate hike of economic conditions improved. The USD rallied hard on the news and a slew of commodities fell. Financial stocks were bid higher all day after the bulls showed up and defended the 50 day moving average.
Thursday & Friday’s Action:
On Thursday, stocks opened lower after the latest round of economic and earnings data was released. Before the open, Wal-Mart ($WMT) beat by 10 cents but that came after the retail giant lowered guidance several times in the past year. Economic data was mixed, jobless claims fell by 16k, to 278, missing estimates for 275k. The Philly Fed Survey fell to negative -1.8, missing estimates for a reading of positive 3. The reading was deeper into negative territory and a big miss. Stocks rallied on Friday as big money rotated into the semiconductor stocks.
Market Outlook: Sideways
The market is trying to bounce from here as the bulls show up and do their best to defend near term support. It looks like what we saw in November and December before the big sell off in January-February. Economic and earnings data remains less than stellar but all that matters now- is the easy money from global central banks. As always, keep your losses small and never argue with the tape.