Here Comes Santa, Stocks Soar To Record Highs

spx 12.23.13- shallow pullbacks and strong advances continuesSTOCK MARKET COMMENTARY:
FRIDAY, NOVEMBER 20, 2013

The SPX and DJIA surged to fresh record highs after the Fed decided to taper QE by $10B per month. The Fed will now print $75B each month instead of $85B (more below), which is still very bullish for stocks. Technically, the action continues to be very bullish as the S&P 500 found support and bounced perfectly off its 50 DMA line. As long as support holds, by definition, the bulls remain in control of this market. Our comments over the past few weeks still stand, “to put this pullback in the proper perspective, the S&P 500 surged 10% in 8 weeks which is a very strong move. Over the past two weeks, the S&P 500 has only fallen 2%. So far, this is just another healthy pullback within a broader uptrend. So far, these pullbacks are lasting a matter of days, not weeks or months- which illustrates how strong the bulls are right now. The intermediate and long term outlook remain very bullish as the major averages and a slew of leading stocks continue to act very well. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold.”

MONDAY-WEDNESDAY’S ACTION: Stocks Soar After Fed Meeting

Stocks rallied on Monday as investors waited for the Fed’s last meeting of the year. Manufacturing activity in the the NY area rose but missed estimates while a separate report showed productivity in the US rose 3% in the third quarter. Stocks fell on Tuesday as the FOMC started their last meeting of the year. Economic data was mixed. The consumer price index remained soft which helped allay any inflation woes. Meanwhile, home builder confidence jumped to 58, beating the Street’s estimate for 55.

Stocks surged on Wednesday after the Fed tapered QE by $10B/month. The Fed will now print $75B each month instead of $85B. Or, instead of printing $5B/day it will now be printing $3.75B/day which is still very bullish for stocks. The Fed made it abundantly clear that it will continue to support the economy and will remain data dependent. So if the economy slows and they need to increase QE, they will. In a perfect world, the Fed wants one of two scenarios to occur: either the economy grows on its own or the Fed continues printing until the economy can grow on its own. Both scenarios are bullish for stocks. Put simply, the Fed is still expanding its balance sheet and printing billions of dollars each day to support the system. Which means the fundamental bullish backdrop remains in place for stocks and technically, the action remains very healthy.

THURSDAY & FRIDAY’S ACTION: STOCKS DEFEND SUPPORT

Stocks were quiet on Thursday as investors digested Wednesday’s big rally. Social media giant, Facebook (FB) slid after Mark Zuckerberg said he would sell 41.4 million shares worth about $2.3 billion as part of an offering of 70 million shares as the stock traded near fresh record highs. Separately, shares of Target (TGT) slid after the retail powerhouse said about 40 million credit and debit card accounts used by its customers may have been compromised by a security breach. Economic reports were mixed. Existing-home sales slid by -4.3% in November, missing estimates and was the lowest reading since December 2012. The Conference Board said economic activity rose in November while the Philly Fed Index beat estimates and rose to 10. On a more concerning note, weekly jobless claims missed estimates for the second straight week and jumped to 379k. Before Friday’s open, the government revised GDP up to 4.1%, much stronger than the prior estimate of 3.6% and the second quarter’s reading of 2.5%.  Stocks rallied on the news as this reaffirmed the Fed’s decision to taper and suggests that the Fed may be able to exit QE gracefully if the healthy action continues.

MARKET OUTLOOK: Bulls Are In Control

As we have been saying all year, the market is strong in all three time-frames: short, intermediate, and long. The last pullback was shallow in size (%decline) and scope (days/weeks, not months). For weeks, we have been saying, the market will pullback and it is just a matter of when, not if. That is exactly what happened. As always, keep your losses small and never argue with the tape.

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