Year-Long Trading Range Continues On Wall Street
The year-long trading range we have seen on Wall Street continued as the benchmark S&P 500 pulled back last week after flirting with resistance (the top of its year-long range). Earnings remain front and center as a slew of companies announced their Q2 results. So far, approximately 75% of companies have beat earnings estimates while just over 50% have beat revenue estimates. At first glance, the fact that two-thirds of the companies beat earnings estimates looks healthy but it is important to note that estimates have been lowered substantially in recent months. So the “bar” is very low and that is why investors are not aggressively buying stocks. For example, if company XYZ was expected to lose 10 cents per share in Q2 but “only” lost 5 cents – technically, they beat estimates but they still lost money – which is not healthy for this lackluster economic recovery. The bulls would argue that over the past 6.5 years we haven’t really seen a robust earnings season – yet the market continues to rally. In the short term, the market is moving sideways while the intermediate and long term trend remains up. We are still in a very strong (but aging) bull market which, by definition, means the path of least resistance remains higher (until any material technical damage emerges).
Monday-Wednesday’s Action: Stocks Drift Lower Top Of Range
Stocks edged higher on Monday helping the S&P 500 rally into resistance (top of year-long trading range) near 2130 area. The Nasdaq 100 and Nasdaq composite jumped to fresh 15-year highs and continue to out-perform the other popular indices. Overnight, the big story was a massive drop in the price of Gold. Gold, (and most commodities for that matter) is in a very long bear market so the path of least resistance is down until the buyers can regain control. Gold hit an all-time high of $1,923.70/ounce in September 2011 and has plunged over 800 points, -43%, since that record high.
Thursday-Friday’s Action: Earnings Continue Coming Out In Droves
Market Outlook: The Central Bank Put Is Alive And Well
Remember, in bull markets surprises happen to the upside. This has been our primary thesis since the end of 2012. We would be remiss not to note that this very strong bull market is aging (celebrated its 6th anniversary in March 2015) and the last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007). To be clear, the central bank put is very strong and until material damage occurs, the stock market deserves the longer-term bullish benefit of the doubt. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam’s commentary/thoughts on the market. Consider joining SarhanCapital.com.