Friday, October 5, 2012
Stock Market Commentary:
The major averages rallied last week and retested their prior chart highs after a two week consolidation. We find it very bullish to see the benchmark S&P 500 jump nearly 16% from June-September (1266-1474) and continue to flirt with fresh multi-year highs. It is also healthy to see the market pullback and digest the recent move in the latter half of September. Furthermore, the fact that stocks bounced in the first week of October after finding support near their respective 50 DMA lines also bodes well for this rally. At this point, we would like to continue giving the market the bullish benefit of the doubt and shall err on the bullish side as long as the major averages remain above their respective 50 DMA lines. However, if the selling intensifies one should quickly adjust their portfolio accordingly. The underlying notion that has helped stocks rally has been that global central banks will step up and do everything they can to avoid the global economy from imploding.
Monday-Wednesday’s Action: Stocks Rally On Decent Economic Data
Thursday & Friday’s Action: Stocks Rally As Unemployment Rate Falls to A 4-Year Low:
Stocks opened higher on Thursday as investors digested a slew of data from across the globe. The European Central Bank and Bank of England both held rates steady, as expected, and said they are concerned that inflation may accelerate in the near future. Spain helped investor confidence after the country sold 4 billion euros ($5.17 billion) in bonds which was near the top end of their target. In the US, the Labor Department said weekly jobless claims rose 4,000 to a seasonally adjusted 367k. This was just shy of the Street’s forecast for 370k. Factory orders for August fell by -5.2% which beat the Street’s forecast for a decline of -6%. Later in the day, the minutest of the Fed’s latest meeting were released. The minutes showed that economic activity continued to increase at a moderate pace and employment rose slowly but the unemployment rate remained elevated. FOMC officials believe that significant additional asset purchases should not adversely affect the ability to tighten the stance of policy when doing so becomes appropriate. Before Friday’s open, the Labor Department said US employers added +114,000 new jobs last month, while the unemployment rate slid to 7.8% and hit the lowest level in 4 years. In other news, the Dow Jones Industrial Average jumped to its highest level since 2007!
Market Outlook- Confirmed Rally:
As we have said for the past several months, the market is in a confirmed rally which means the path of least resistance remains higher. The major averages are back at/near multi-year highs after a brief and healthy two week consolidation to digest their recent gains. Technically, the next level of support are April’s highs (1422 in the S&P 500) and then the 50 DMA line. Trade accordingly. As always, keep your losses small and never argue with the tape.