Thursday, February 16, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets were quiet on Thursday as the latest round of stronger than expected economic data was released. 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 S&P 500 has done a great job staying above its Q4 2011 high (~1292) and is flirting with 1356 which corresponds with July’s high. The next level of resistance is 2011’s high just above 1370. The bulls remain in control as long as the benchmark S&P 500 trades above 1292 and then its 200 DMA line.
Healthy Economic Data Helps Stocks:
Stocks were relatively quiet on Thursday even though the latest round of economic data was rather healthy in the U.S. The big news was that initial jobless claims fell sharply last week to 348,000, which was lower than the Street’s estimate for 365,000. The report also showed that continuing claims slid to 3.43 million from 3.53 million. A separate report showed that housing starts rose 699,000 last month which also topped the Street’s estimate for 671,000. Building permits rose slightly to an annualized rate of 676,000, which just beat the Street’s estimate for 675,000. The Philadelphia Fed Manufacturing Index rose more than expected to 10.2 in February. Finally, news on the inflation front was mild. The producer price index rose by +0.1% in January which was less than the average estimate for an increase of +0.3%. However, core prices jumped to +0.4% which was double the average estimate.
Market Outlook- Confirmed Rally
Nearly all risk assets are extended by any normal measure and are due for a pullback to consolidate their recent gains. The key is to ascertain the “health” of the pullback to see if it is a short pause in a new uptrend or the beginning of a new downtrend. 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 (1292). 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!