Last week, the market complexion changed and is a little weaker which means a defensive stance is warranted in the short-term. One of the hallmarks of a bull market is to see the market brush off nearly all negative news and just keep racing higher. Since the election, that was exactly what has been happening, but that dynamic changed last week.
The market sold off hard on Wednesday after news broke about the Comey memo. Once again, the sell-off was very short in nature and the bulls showed up on Thursday and Friday, helping repair some of the damage. In the short term, last week’s lows are the next level of support to watch, then the 50 DMA line for the S&P 500, Nasdaq Composite, and Nasdaq 100. Then, the next important levels of support to watch are: Russel 2000: 1351, then 1335, then 1308. The Dow Industrials: 20.6K, then 20.4k, S&P 500: 2352, then 2322.25, Nasdaq Composite: 5995, then 5805, then 5769.39. Until those levels are breached on a closing basis, the bulls remain in control on an intermediate and longer term time-frame.
We are often asked about why the market is holding up so well with everything that is happening in the political arena. The answer is simple: investors only care about what policies come out of D.C. that directly impact Main Street or Wall Street. So far, the policies have been bullish for the economy and, as investors look forward there appears to be more economic-friendly policies in the pipeline. As previously mentioned, the other, more important, reason is that we are in a very strong bull market, and we pay much more attention to how the market reacts to the news.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
The S&P 500 and Nasdaq hit record highs on Monday, led higher by big cap tech stocks. Economic news was light. The National Association of Home Builders survey showed sentiment among home builders hit 70 for May, which was nicely higher than last May’s reading of 58. Elsewhere, the Empire State manufacturing index fell to -1 in May from positive 5.2 in April.
Stocks were quiet on Tuesday as the political drama in D.C. continued. Stock futures began falling after Tuesday’s close, when a report surfaced that former FBI Director James Comey wrote a memo that said President Donald Trump allegedly asked him to stop an investigation into Michael Flynn, the former national security adviser. Overnight, the selling intensified and investors spent the whole day on Wednesday aggressively dumping stocks. The U.S. dollar also fell as the political drama from D.C. hurt confidence in the greenback. So far, Wednesday was the single largest decline of the year.
Thur & Fri Action:
Stocks, and the U.S. dollar, edged higher on Thursday after the buy-the-dip crowd showed up after 2017’s largest single day decline. Stocks rallied on Friday as buyers showed up after Wednesday’s sell-off. President Trump took his first official trip to the Middle East and oil prices jumped back above $50/barrel after OPEC said it may extend production cuts.
Market Outlook: Stocks Are Strong
The market is very strong. As always, keep your losses small and never argue with the tape.
