Stocks Defend Support; Triangle Forming In SP 500

SPX 6.17.13. Large Triangle FormingSTOCK MARKET COMMENTARY:
FRIDAY, JUNE 14, 2013

For the second straight week the bulls defend three important areas of support for the major averages: 50 DMA line, 6-month upward trendline, & April’s high. So far, every pullback this year continues to be very shallow in both size (% decline) and scope (relatively short) which bodes well for the bulls. The question is will this be a shallow pullback or turn into something more severe. From our point of view, until the market closes below support the bulls deserve the benefit of the doubt. The SPX is in a new trading range between 1687 (resistance) and 1600 (support).

Monday-Wednesday’s Action: Stocks Retest 50 DMA line

Stocks were relatively quiet on Monday as investors digested the market’s healthy rally off its 50 DMA line. S&P, one of the popular rating agencies, raised the U.S. sovereign credit outlook to “stable” from “negative,” with a current rating of AA. S&P also said that the likelihood of a near-term downgrade is “less than one in three.” St. Louis Fed President James Bullard said the jobs market has improved over the past 12 months and suggested that the Fed could slow QE. Bullard also said that since inflation remains low easy money policies could continue for much longer. Overnight, more lackluster economic data from the world’s second largest economy was announced. China reported weaker-than-expected trade data, slowing growth in fixed asset investments, and a big drop in producer prices.
Stock markets across the globe fell on Tuesday after the Bank of Japan’s latest meeting. Investors were hoping that the BOJ would address the recent market volatility or hint to further easing. Instead, the BOJ held steady which sent the Yen soaring and the Nikkei plunging (opposite of what has been happening over the past 6 months). In the US, small business optimism rose to a one  year high.
Stocks opened higher on Wednesday but turned lower shortly after the open as investors digested a slew of data from Europe. April industrial production for the eurozone rose 0.4% which topped estimates for a flat to up reading of 0.1%. Elsewhere, the unemployment rate in the U.K. matched estimates and stayed at 7.8%.The World Bank cut its growth outlook for the global economy to 2.2% in 2013, down from its earlier forecast of 2.4% from late 2012. The global economy grew 2.3% in 2012.

Thursday & Friday’s Action: Stocks Bounce Off Support

Stocks were quiet on Thursday after a slew of mixed economic data was released and Japan’s stock market plunged a whopping 850 points overnight and officially entered a bear market (defined by a decline of 20% or more from a recent high). The vehemence of the decline should not be taken lightly as the Nikkei plunged over 20% in only 3 weeks. In the U.S. the data was mixed to mostly positive. Weekly jobless claims fell by 12k to a seasonally adjusted 334k which bodes well for the jobs market. It was also healthy to see U.S. retail sales swell by 0.6% which topped the Street’s estimate for a gain of 0.4%. Investors were not happy to see import and export prices unexpectedly fall which points to weaker, not stronger, economic growth. Stocks were relatively quiet on Friday as the latest round of of economic data was released. Consumer sentiment slid to 82.7 in June which missed the Street’s estimate for 84.5. The producer price index (PPI) rose to 0.5% which beat the Street’s estimate for a gain of 0.1%. Industrial production was unchanged in May which missed the Street’s estimate for a gain of 0.2%. Finally, the current account deficit widened to 106.1 billion, missing the street’s estimate for a gain of 109.7 billion. The Washington-based IMF lowered its U.S. growth forecast for 2014 to 2.7%, from its earlier forecast of 3% in April. The IMF left its 2013 growth target steady at 1.9%.

MARKET OUTLOOK: Bulls Defend Support

For weeks we have mentioned that the market was over extended to the upside and due for a light volume pullback to shake out the weak/late longs and that is exactly what happened. We will be closely watching these key areas and how they react with respect to their 50 DMA lines: The Nasdaq Composite, Nasdaq 100, Housing (XHB), Financials (XLF), Transports (IYT), Health Care (XLV), Utilities (XLU), Small (IWM) and Mid caps (MDY) are near their respective 50 DMA lines. For those of you that are new to our work, we keep track of the market status differently than other people. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. Looking forward, the bulls remain in control of this market as long as the benchmark S&P 500 holds above its 50 DMA line. As always, keep your losses small and never argue with the tape.

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