1987 VS 2013: A QUICK LOOK
It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness.
MONDAY-WEDNESDAY’S ACTION: Stocks Bounce From Oversold Levels
Stocks negatively reversed on Monday (opened higher and closed lower) after Secretary of State John Kerry said the use of chemical weapons in Syria was not acceptable. The VIX, also known as the fear gauge, jumped on the news which suggests the bears are getting stronger. In addition, the DJIA & SPX failed at their respective 50 DMA lines which is not encouraging. In M&A news, Amgen (AMGN) surged over 10% after they made an offer to acquire Onyx Pharmaceuticals (ONXX) for over $10B. Economic data was lousy, durable goods plunged -7.3% easily missing the Street’s estimate for a -0.4% decline. separately, the Dallas Fed manufacturing survey rose to 5.0 which beat the Street’s forecast for 4.5.
Stocks plunged on Tuesday, taking out the recent lows and falling decisively below their respective 50 DMA lines after news spread that an air strike might occur as soon as Thursday. Defense Secretary Chuck Hagel told the BBC that the US military is “ready to go” if Obama orders action in Syria. The VIX, Crude oil, and Gold soared on the news. Economic data was quiet. The S&P Case/Shiller Index showed that home prices rose on average 0.9% in June, matching the Street’s estimate. The report showed that home prices jumped 12.1% vs the same period last year. Elsewhere, consumer confidence rose to 81.5, beating estimates for 78. The Richmond Fed Manufacturing index, which measures manufacturing activity in region, jumped to 14, easily beating estimates for an unchanged reading.
Stocks rallied on Wednesday as geopolitical risks eased. Gold and Oil prices eased after surging to multi-year highs on Monday and Tuesday. Pending home sales slide 1.3% in July , missing estimates for a decline of -1%.
THURSDAY & FRIDAY’S ACTION: Syria Fears Linger
MARKET OUTLOOK: BEARS ARE GETTING STRONGER
The market still has some issues as the DJIA & SPX are now “living” below their respective 50 DMA lines. Defensive is paramount until the major averages trade, close, and stay above their respective 50 dma lines. 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. As always, keep your losses small and never argue with the tape.