Stocks snapped a very strong 7-week win streak after overseas jitters coupled with imploding oil prices hurt confidence. Over the past month, we have written extensively about how this market was getting “extended/over-bought” and way overdue for a pullback of some sort. That is exactly what is happening right now. In the short-term, the path of least resistance is lower as the market remains in pullback mode (which is not the end of the world). Last week’s action was not ideal. The market erased 4-weeks of gains in only a week and a slew of stocks were hit in heavy volume. Ideally, we like to see nice, quiet, orderly, low volume pullbacks as the market rallies – not steep and sharp declines. It is also important to note that this has been a tough year for most investors and people are scared that they will give back any gains they may have as we approach year-end. This leads to “a sell now and ask questions later” mentality as people rather sell their stocks then hold them at this point. That is exactly what is happening right now. At this point, the intermediate and long term outlook remains bullish as the major averages remain in very strong uptrends.
Monday-Wed’s Action: Stocks Fall As Fear Spreads
Stocks fell on Monday after crude oil continued to fall hard and Japan’s revised its third quarter GDP lower.China said its trade balance showed exports and imports both fell. This, coupled with Japan’s lousy GDP reading, hurt demand for many commodities and the global economy. Surprisingly, China’s stock market surged a very impressive 23%, over the past 12 trading sessions after China’s Central Bank announced a new round of stimulative measures.
Thurs & Fri’s Action: Stocks Hit On Global Demand Woes
On Thursday, stocks rallied but closed in the lower half of the range for the day. The S&P 500 snapped a 4-day losing streak after retail sales topped estimates in November. Sales rose 0.7% in November, easily beating estimates for a gain 0.4%. Stocks fell sharply on Friday as crude oil plunged to the lowest level since 2009. Crude oil, which has been in a near free-fall for the past few months, fell hard after The International Energy Agency lowered its outlook for global demand. Economic data failed to impress. Last month, U.S. wholesale prices slid -0.2% in the producer price index after a 0.2% increase in October.
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. Keep in mind that the bull market is aging (turned 5 in March 2014 and the last two major bull markets ended shortly after their 5th anniversary; 1994-March 2000 & Oct 2002-Oct 2007). Until material damage occurs, this market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape.