Friday, January 27, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets rallied in the final full trading week of the month as investors digested a slew of economic and earnings data. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line. Looking forward, the S&P 500 is doing its best to stay above its Q4 2011′s high (~1292) and now has its sights set on its 2011 high near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above 1292 and then its 200 DMA line.
Monday-Wednesday’s Action: Stocks Rally After State of the Union & Fed Meeting:
On Monday, stocks and slew of other risk assets opened higher as investors awaited a busy week of earnings and economic data. The euro rallied as finance ministers and other officials met in Europe to discuss the terms of the Greek restructuring deal which will be part of a second bailout package for Athens. The officials also discussed other important issues that are aimed to help quell the massive debt issues plaguing the continent. Remember in addition to digesting the actual news it is extremely important to focus on how markets react to the news for signs of what the participants are actually thinking.
On Tuesday, markets opened lower as investors digested a slew of earnings news and another failed deal to save Greece. European leaders rejected proposals from private bondholders for a Greek “haircut” due to the size of the cut. Private bond holders argued for smaller cuts while EU leaders want larger cuts to prevent another default in March. Christine Lagarde, managing director of the IMF, told CNBC that the fund needs another $500B to help tackle the European debt crisis. Separately, the U.S. Federal reserve began its two-day meeting and after the close tech giants Apple (AAPL) and Yahoo (YHOO) released their latest quarterly results and President Obama delivered his State of the Union address. Other blue chips such as McDonald’s (MCD) and Verizon (VZ), released mixed Q4 results.
On Wednesday, stocks rallied as investors digested a slew of economic and earnings data. President Obama’s State of the Union address did little to move markets as he largely reiterated his recent stance on a slew of domestic and foreign issues. One of the highlights was when the President proposed large changes to the convoluted tax code. He proposed a minimum 30% effective rate on millionaires to eliminate inequalities in the tax current tax structure that favor wealthier citizens. In other news, pending home sales missed estimates which was not ideal. Weekly mortgage applications edged lower which is not ideal for the ailing housing market. The Federal Reserve held rates steady and said they will likely hold rates near zero until 2014 as the economy continues to recover. Many stocks that released earnings were mixed this week.
Thursday & Friday’s Action: Stocks Quiet After Strong Week:
On Thursday, stocks and a slew of risk assets opened higher but were quiet in the wake of the Federal Reserve’s latest meeting. The latest economic and earnings data was mixed to slightly positive which also helped stocks. Durable goods rose 3% which easily topped the Street’s estimate for a 2% gain. Meanwhile, the Labor Department said weekly jobless claims rose by 21,000 to 377,000 which topped the Street’s estimate for a gain of 370,000. Leading economic indicators rose to a 5-month high. However, new home sales unexpectedly fell -2.2% to a seasonally adjusted annual rate of 307,000, which was the first decline in 4 months and lower than the Street’s estimate. Before Friday’s open, the government said Q4 GDP grew by +2.8% which will be adjusted two more times before the end of March.
Market Outlook- New Rally Confirmed
Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (1292). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!