Stocks Fell Last Week But Remain Perched Just Below Record Highs



The major averages slid last week after fear spread regarding when the Fed will taper. So far, the action remains healthy as prior chart highs are being defended. The S&P 500’s high in May was 1687 so that is the first near term area of support, then its 50 day moving average line (near 1652). In a subtle sign of strength, we found it encouraging to see volume rise on Thursday (the one “up” day last week) and easily outpace volume on the “down” days. As we have stated several times in the past, the key driver of this bull market is the easy-money sloshing around the globe from central banks and until that changes, everything else is secondary.

MONDAY-WEDNESDAY’S ACTION: Stocks Edge Lower on Taper Talk

Stocks ended mixed but spent the majority of Monday’s session in the red as investors digested a slew of economic and earnings data. China’s service sector rose in July which bodes well for the world’s second largest economy. China’s non-manufacturing PMI jumped to 54.1 in July from June’s 53.9. In the U.S., the ISM’s service index rose to 56, also beating estimates (53).

Stocks fell on Tuesday and logged their worst day since June after several Fed heads came out and spooked the market after they said the Fed may taper as soon as September. Atlanta Fed president Dennis Lockhart and Chicago Fed President Charles Evans said the Fed may reduce QE laters this year. In other news, Australia’s Central Bank cut rates by 25 basis points to a record low of 2.5% making them the latest central bank to join the easy money party. In the U.S., the trade deficit narrowed to its lowest level in more than 3.5 years.
Stocks slid on Wednesday as fear spread that the Fed may taper in September. Overseas, the Nikkei, Japan’s stock market, plunged in heavy trade and broke below its 50DMA line as that index continues to struggle after topping out in May.


Stocks snapped a three-day losing streak on Thursday after upbeat data was announced from China. China said exports jumped 5.1%, beating the 3.0% estimate while imports surged 10.9%, easily beating the 2.1% forecast. China’s trade surplus narrowed to $17.82 billion from $27.10 billion. Bank of England’s governor, Mark Carney, outlined his plan to link interest rates to unemployment, taking a page from the Fed’s book. In the U.S., weekly jobless claims rose by 5k to 333k last week, beating the Street’s estimates for 336k. Stocks slid on Friday but again the volume remained anemic which suggests distribution (heavy institutional selling) remains contained- for now.


The Fed induced rally is alive and well after Bernanke did a 180 and shifted the narrative back to a world of infinite Fed money. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.




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