The SPX and DJIA fell for a second straight week but found support near their prior chart highs and aboce their respective 50 DMA lines. As long as support holds, by definition, the bulls remain in control of this market. To put this pullback in the proper perspective, the S&P 500 surged 10% in 8 weeks which is a very strong move. Over the past two weeks, the S&P 500 has only fallen 2%. So far, this is just another healthy pullback within a broader uptrend. So far, these pullbacks are lasting a matter of days, not weeks or months- which illustrates how strong the bulls are right now. The intermediate and long term outlook remain very bullish as the major averages and a slew of leading stocks continue to act very well. As we have mentioned several times this year, we are in a very strong bull market and pullbacks should be bought, not sold.
MONDAY-WEDNESDAY’S ACTION: Stocks Slide On Taper Woes
Stocks rallied on Monday, helping the S&P 500 jump to a fresh record close. Several Fed officials gave speeches around the country with some arguing for a Fed taper sooner than expected while others argued for more QE. CNBC.com reported that: Federal Reserve Bank of Richmond President Jeffrey Lacker on Monday said he expects a taper discussion at next week’s Federal Open Market Committee meeting, while St. Louis Fed President James Bullard said positive trends in the labor market make cuts to the Fed’s $85 billion in monthly bond purchases more likely. Speaking in Chicago, Federal Reserve Bank of Dallas President Richard Fisher reiterated his view that the Fed should start cutting back on its bond purchases “at the earliest opportunity.” The speeches came before Fed officials go into their “blackout” period before the two-day FOMC gathering that starts next Tuesday. Overseas, China said exports rose +12.7% last month compared to November 2012 while imports rose 5.3%. A separate report showed that consumer prices rose 3% in China.
US stocks were quiet on Tuesday as investors paused to digest the recent move. Shares of Twitter (TWTR) jumped to a new all-time high which captured some headlines. The US said that it exited its stake in General Motors (GM) and lost $10 billion in the process. Separately, GM announced said Mary Barra will take over as CEO, which was the first female CEO in the care company’s history. Stocks fell on Wednesday sending the small-cap Russell 2000 slicing below its 50 DMA line for the firs time since October 9th. Separately, D.C. reached a budget deal to reduce automatic spending cuts and the deficit by $23 billion over the next two year. Hilton Worldwide (HLT) priced at $20 a share and came public after Blackstone (BX) took the hotel giant private in 2007.
THURSDAY & FRIDAY’S ACTION: Stocks Try To Defend Support
Stocks fell for a third straight day on Wednesday as fear spread that the Fed may taper on Wednesday. We still don’t think that the Fed will taper one week before Christmas but we are cognizant of the fact that what the market thinks will happen is the only thing that matters. Shares of Facebook (FB) soared after S&P Dow Jones Indices said the social-media giant will be added to the S&P 500 in a few days. Facebook is already in the Nasdaq 100 and the fact that it is being added to the S&P 500 bodes well for this young stock. Stocks were relatively quiet on Friday.
MARKET OUTLOOK: Bulls Continue To Fight
The market is strong and, in the short-term, is pulling back to help alleviate its very extended condition of late. For weeks we have been saying, the market will pullback and it is just a matter of when, not if. That is exactly what is happening. As always, keep your losses small and never argue with the tape.