Fireworks On Wall Street; Dow Tops 17k, Market Hits New High

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Stocks Surge To Fresh Record Highs

Stocks soared to fresh record highs during the first week of Q3. The market remains exceptionally strong in all three time-frames: short, intermediate and long. In the short term, the major averages are extended and overdue for a nice pullback. As previously mentioned, we trade on what we see happening, not what we think will happen. The latest consolidation only lasted 2 weeks which was just another shallow (and bullish) pullback in size (% decline) and scope (didn’t last long). The best way to interact with markets is to focus on what is happening right now (known) and avoid the temptation to predict the future (which by definition, is unknown). That said, right now we are in a very strong bull market and weakness should be bought until further notice.

MON-WED: Bulls Are In Control

Stocks ended mixed on Monday as the month and quarter came to an end. The S&P 500 has only had one down month since Aug 2013 and has not had a down quarter since QE 3 began at the end of 2012! That speaks volumes to how strong the bulls are right now and until this very strong action ends- the market deserves the bullish benefit of the doubt. Monday’s economic reports were mixed. First the good news, Pending Home Sales jumped to the highest level in four years, rising +6.1%, easily beating the +1.5% consensus. The ISM said its business activity in the Chicago area came in at 62.6 for June, which missed estimates.  On Tuesday, stocks surged to fresh record highs on the first day of the third quarter which helped the Dow Jones Industrial Average and the benchmark S&P 500 edge closer to their next psychologically important levels of 17k and 2k- respectively.The ISM Manufacturing Index slid to 55.3 in June, missing estimates for an increase to 55.8. Elsewhere, construction spending rose +0.1% in May, also missing estimates for a gain of 0.4%. On Wednesday, stocks traded in a very narrow range which is a healthy sign ahead of the always fun monthly jobs report. Before Wednesday’s open, ADP, the country’s largest private payrolls company, said US employers added 281k, beating estimates for 200k. Wednesday was the tigthest trading range of the year for the DJIA.

THURS-FRI: Stocks Surge To New Highs

Before Thursday’s open, the Labor Department said US employers added 288k new jobs last month which easily beat the Street’s estimate for 215k. The market surged higher on the news helping the Dow Jones Industrial Average top 17k for the first time in history. The next level to watch is 2k in the S&P 500. Some interesting notes, going back to 1950, the SPX has never been down in January then up five straight months. At least until this year that is. Going back to 1990, the VIX is up more in July than any other month. The SPX up +37% since this 6 quarter win streak started which is actually the weakest for any 6 quarter win streak since 1950. 1Q 2014 GDP dropped -2.9%, while SPX gained +1.3% for a difference of +4.2%.The biggest difference between GDP and quarterly return is 1Q 1975.  $SPX gained +21.6% and GDP dropped -4.7%. The biggest negative difference between SPX and GDP was 4Q 1987.  SPX dropped -23.2% and GDP gained 6.8% for a difference of 30%. The S&P 500 longest streak above the 200-day in market history crossed 400 trading days last week; now at 402. Since 1928, have been an avg of 3.5 Corrections of >5% per year in SPX. Only 1 in 2013 and 1 thus far in 2014. All this illustrates how strong the bulls are right now. The market was closed on Friday in observance of the July 4 holiday.

MARKET OUTLOOK: Strength Begets Strength

Everyone was expecting the market to pullback but instead- it refuses to fall and has gone straight up. This illustrates how strong the bulls are right now and that weakness should be bought, not just strength. Keep in mind that this bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007) but until we see signs of distribution (heavy selling) the market deserves the bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.

Happy 4th!

Dow Tops 17k For The 1st Time In History

INDU

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