Week-In-Review: Big Breakout On Wall Street

2 SPX breaks out of rangeBig Breakout On Wall Street

The market finally broke out of its very long trading range and the key now is to see if this rally can continue. In the short term, the market is very extended and is way overdue to pullback to digest the recent rally. The benchmark S&P 500 and Dow Jones Industrial Average both broke out of their very long 18-month sideways (and very choppy) trading ranges. As long as the S&P 500 stays above 2134, the action remains very bullish. If the breakout is negated, then we have to expect more nauseating sideways action to ensue. Normally, big base breakouts, in long uptrends, are bullish for the market and we are not here to fight it or argue with it. We do want to note that the bears have a legitimate argument and there are a million reasons why stocks should fall but all that doesn’t matter. The only thing that does matter is what the market is actually doing. We also want to remain cognizant of the fact that the bulls are in clear control right now. The evidence is indisputable and the fact that the market refuses to fall (enter any bearish reason you want) tells you everything you need to know. Central banks are printing like maniacs and (for now) stocks are being accumulated. That could change but until it does, our primary job is to stay in harmony with what is happening on Wall Street. The operative word is what, not why. We all make or lose money based on what is actually happening, not why something happened or did not happen. We did a great job of navigating the market for you during the volatile sideways trading-range and we are once again looking forward to making a lot of progress in the foreseeable future.

Monday-Wednesday’s Action:

The S&P 500 broke out of its very long trading range and hit a fresh record high on Monday. Overnight, Japan’s ruling party won their election by a large margin and announced more stimulus. That sparked a huge rally in Japan’s stock market (up almost 4%) and that lead to more gains across the globe. Current U.K. Prime Minister David Cameron said that he will stand down from his position on Wednesday. Interior minister Theresa May will replace him and she will be the first woman to hold that post since Margaret Thatcher.

Stocks raced higher as earnings season officially began and investors embraced more stimulus from global central banks. The Bank of England and the Bank of Canada are set to meet this week. Japan already said more easy money will be coming and that helped stocks break out of range and hit new record highs. After Monday’s close, Alcoa (AA) kicked off earnings season and the stock rallied 5% after reporting their Q2 results.
 
Stocks were quiet Wednesday as the market paused to digest the recent and strong ~8% post Brexit rally. Economic data was relatively light, U.S. import prices rose +0.2% last month and missed estimates. Meanwhile, export prices rose +0.8%. The Fed’s Beige Book showed the economy continued to moderately grow. Elsewhere, oil prices fell after the International Energy Agency (IEA) warned that the supply glut will adversely affect prices and U.S. crude and product supplies hit a record.
Thursday & Friday’s Action:

Stocks rallied on Thursday as investors digested the latest round of economic data. JP Morgan (JPM) rallied after the company easily beat estimates. Shares of BlackRock (BLK) slid after the asset manager reported results that matched estimates. Overseas, the Bank of England decided to keep rates steady and suggested they may cut rates in August which means the easy money is here to stay. Several Fed heads came out today and said the Fed should remain patient in normalizing rates because of Brexit and other economic concerns. Stocks were relatively quiet on Friday as the market paused to digest the very strong post brexit rally. After the close, Turkey’s miltary attempted a coup. The situation is still fluid (as of this writing) but futures fell after the close. If it is a swift exchange of power then we do not expect the market to react that much. Instead, if it gets ugly and drawn out (or it happens in other counties) then that could adversely affect the market. . 

Market Outlook: Stocks Are Strong

The market finally broke out of its very long trading range and the key now is to see if this rally can continue. Economic and earnings data remain less than stellar which could mean more easy money from global central banks. As always, keep your losses small and never argue with the tape. 

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