Here’s how the market performed in Q1 (& so far in 2017): DJ Industrial Avg +4.56%, S&P 500 +5.57%, Nasdaq Comp +9.82%, Russell 2000 +2.13%.
The title of last week’s article was: Market Tests Support. On cue, the bulls showed up earlier in the week and defended support for the major indices (50 DMA line which was highlighted for you in last week’s report). That was the first real test of the 50 DMA line since the election. For now, the bulls emerged victorious because that level was defended.
Going forward, the bulls remain in control as long as the major indices remain above the 50dma. I do want to note that the tape is getting a little messy and several important areas of are below their respective 50 DMA lines: Transports (IYT), Steel Stocks (SLX), Russell 2000 (IWM), Mid-Cap 400 (MDY), Materials (XLB), just to name a few. Right now, there are three options: 1. the market bounces from here, lifting these areas back above their 50 DMA lines. 2. The major indices rollover and break below support. 3. The market moves sideways for a few months to consolidate the recent move. Until the market cracks, the bulls have earned the benefit of the doubt and the market likely heads higher from here.
Right now, there are three options:
- The market bounces from here, lifting these areas back above their 50 DMA lines.
- The major indices rollover and break below support.
- The market moves sideways for a few months to consolidate the recent move.
Until the market cracks, the bulls have earned the benefit of the doubt and the market likely heads higher from here.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks fell on Monday as the major indices tested their respective 50 DMA lines for the first time since the election. The Dow Jones Industrial Average posted a 8-day slide which was the longest since 2011. The narrative of the day was that investors were concerned Trump’s tax reform bill would get blocked because the Healthcare bill didn’t pass.
Stocks opened lower and closed higher on Tuesday after the bulls showed up and defended support (50 DMA line). The Dow snapped its 8-day losing streak and rallied nicely causing the buy-the-dip crowd to step in and buy the first real dip since the election. Stocks closed mostly higher on Wednesday after the United Kingdom passed article 50 which officially begins the Brexit process.
Thur & Fri Action:
On Thursday, the market rallied nicely as bank and energy stocks bounced back from deeply oversold levels. The Nasdaq posted a record close as tech stocks continue to shine. In other news, oil jumped above $50 a barrel as it also bounced back from oversold levels. Stocks were relatively quiet on Friday which was the last day of the month and quarter.
Market Outlook: Strong Action Continues
The market remains strong as the major indices continue to hit fresh record highs. The bulls have a very strong fundamental backdrop of monetary and now fiscal policy. All the major central banks are still relatively “dovish” which is bullish for stocks. The U.S. Fed only raised rates by a quarter point to 0.75%, which, historically, is still very low. On the fiscal side, Trump’s pro-growth policies are received well. As always, keep your losses small and never argue with the tape.
