Friday, January 20, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets rallied for the third consecutive week and are on track to end higher for the month. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line. Looking forward, the market is doing its best to make its way above Q4 2011’s high (~1292) and now has its sights set on its 2011 highs near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above its 200 DMA line.
Monday-Wednesday’s Action: Euro Rallies and lifts other risk assets
On Monday, U.S. markets were closed in observance of Martin Luther King’s birthday. China said its economy grew at its weakest pace in 2-1/2 years as exports waned and their housing and stock markets continue to fall. China’s economy remains strong on a relative basis and rose 8.9% in Q4 which topped the 8.7% forecast. On Tuesday, stocks opened after Spain’s debt auction topped estimates and the latest round of Q4 earnings were mixed. Citigroup (C) missed numbers while Wells Fargo (WFC) beat the Street’s estimates.
On Wednesday, stocks were relatively quiet after rumors spread that the IMF was working on a last minute plan to bailout the euro. Corporate data in the U.S. was mixed to slightly higher. Goldman Sachs (GS) was one of the many companies to release earnings on Wednesday. The investment bank topped estimates but saw earnings and sales contract compared to the same levels in the prior year (2010). Meanwhile, the Labor Department said the producer price index unexpectedly fell by -0.1% which missed the Street’s expectation for a gain of +0.1%.
Thursday & Friday’s Action: Euro Rallies, Earnings & Economic Data Help Stocks
On Thursday, stocks and a host of other risk assets rallied after the Euro continued its week-long charge higher and investors digested the latest round of economic and earnings data. Before Thursday’s open, Bank of America (BAC) met estimates while investment bank Morgan Stanley (MS) missed. However, both stocks opened higher which helped the rest of the market rally. Another beaten down sector of 2011 that has been on a tear of late is the housing stocks. Due to the recent action in housing stocks we are of the belief that a significant low may be developing.
The news on the economic front was mostly positive. Weekly jobless claims plunged last week which bodes well for the broader economy and the ailing jobs market. The Labor Department said weekly jobless claims tanked by 50,000 to 352,000 which was the lowest reading since April 2008. Moreover, the four-week average, which is used to give smoother readings, plunged to 379,000 which is the second-lowest reading in more than 3 years. The Commerce Department said housing starts slid -4.1% to a seasonally adjusted annual rate of 657,000 units. Finally, the consumer price index (CPI) was unchanged last month which helped allay inflation woes. This was the second consecutive monthly decline for the headline number while core prices (which exclude food and energy) edged up +0.1%. Stocks were relatively quiet on Friday as investors digested a slew of high profile earnings reports (GOOG, GE, IBM, INTC, etc).
Market Outlook- New Rally Confirmed
Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (1260). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!