Monday-Wednesday’s Action: Stocks Getting Weaker, Not Stronger
Stocks fell hard on Monday after the despicable events occurred at the Boston Marathon and a slew of weaker-than-expected economic and earnings data was announced. The big news was that a slew of commodities plunged overnight. Most notably, Gold & Silver Plunged 10% and 13% respectively which sent gold down over 140 points in one day! It is important to note that both, gold & silver are in bear markets which means the path of least resistance is lower until some sort of bottom is forged. The commodity sell-off occurred after China, a growth engine for the global economy, said its economy “only” grew by 7.7% in Q1 which missed the Street’s estimate for 7.9%. In the US, the NY manufacturing index missed estimates. The index grew by 3.05 in April down from 9.24 in March which is another “sluggish” data point. On the M&A front, Sprint Nextel (S) vaulted over 16% after Dish Network (DISH) offered to acquire the telecom company for $25.5 billion in cash and stock.
Stocks rebounded sharply on Tuesday after investors digested the latest round data. Most notably, Citigroup (C) rallied but Wells Fargo (WFC), JP Morgan (JPM), Goldman Sachs (GS), Bank of America (BAC), Morgan Stanley (MS), and Bank of New York Mellon (BK) fell after announcing their Q1 results. Economic data was positive after new home sales jumped to their highest level since 2008 and topped estimates. Elsewhere, the consumer price index (CPI) slid in March for the first time in four months as the cost of gasoline continued to fall. So far, inflation has not been a threat and the narrative is slowly shifting toward deflation.
Stocks opened lower on Wednesday after the Financial Times said a senior auditor in China warned that local government debt is “out of control.” Elsewhere, the IMF downgraded its outlook for US growth to 1.9% in 2013 and 4% in 2014 which adds pressure for the additional pressure. The IMF also said that it sees 20% of corporate debt unsustainable in parts of Europe, which put pressure on European shares. The Fed’s Beige Book indicated general economic conditions are improving and mostly stronger than expected.
Thursday-Friday’s Action: S&P 500 Fights To Stay Above Its 50 DMA line
Market Outlook: Rally Under Pressure
The market rally remains under pressure as we noted in our mid-week update. The technical damage continues to mound which is not ideal. The following areas broke below their respective 50 DMA lines which is not healthy: Nasdaq Composite, Nasdaq 100, Russell 2000, DJTransports, Housing, Financials, Metals, Miners, Oil, Apple, to name a few. Some of these influential areas are fighting back but whether or not they stay above their 50 DMA lines is yet to be determined. As always, keep your losses small and never argue with the tape.