Another Strong Week On Wall Street

Stock Market Commentary:
Friday, May 10, 2013

We changed the status from rally under pressure to confirmed rally in our Tuesday 4/23/13 mid-week update and noted that the bulls are back in control of this market. So far, every pullback this year has been very shallow in both size (% decline) and scope (days, not weeks). As long as this healthy action continues we shall continue to err on the long side. At this point the market is getting extended and a pullback of some sort rises everyday as the S&P 500 is getting extended from its 50 DMA line.

Stocks opened flat on Monday as investors digested the prior week’s large rally. More tepid economic data was released in Europe. Euro-area services and manufacturing data missed estimates. Euro manufacturing output fell for a 15th consecutive month in April. Meanwhile, European Retail sales fell for a second month in March.

Stocks opened higher on Tuesday as investors digested a slew of economic data from across the globe. The Reserve Bank of Australia lowered its benchmark cash rate at its monthly meeting overnight, shaving a further quarter-point off yields to 2.75%. In Europe, German factory orders beat estimates and French industrial production missed estimates. In the US, consumer credit rose by $8.0 billion in March which was down an upwardly revised $18.6 billion (from $18.1 billion) in February. April’s reading also missed the street’s estimate for a gain of $16.3 billion. Additionally, it was the first time since September 2012 that consumer credit did not increase by at least $10.0 billion.

Stocks and a slew of commodities edged higher on Wednesday after China reported stronger than expected economic data. China reported that its imports and exports grew more than expected which bodes well for the global economy. The stronger than expected data from China helped off set some concern over a slowdown in the world’s second-largest economy. Separately, skepticism remained over the strength of real demand and the accuracy of the figures.

Thursday & Friday’s Action: US Dollar Rallies As Commodities Fall

Stocks were quiet on Thursday as investors digested a slew of economic and earnings data from across the globe. Overnight, South Korea’s Central Bank unexpectedly cut rates in an attempt to stimulate their economy. Separately, China said its consumer price index (CPI) jumped last month which sparked concern that Beijing may tighten monetary policy to curb inflation. In the US, weekly jobless claims fell by 4k to 323k which was the lowest level since 2008 and bodes well for the U.S. economy. The stronger than expected data sparked concern that the Fed may taper off bond purchases sooner rather than later. Stocks slid on Friday as a slew of commodities fell hard after the Aussie Dollar plunged below important support.

Market Outlook: Confirmed Rally

It is important to note that the S&P 500 held its 50 DMA line almost to the penny in the middle of April on a closing basis which was a very healthy event. Elsewhere, The Nasdaq Composite, Nasdaq 100, Housing (XHB), Financials (XLF), Transports (IYT), Small (IWM) and Mid caps (MDY) are all back above their respective 50 DMA lines. For those of you that are new to our work, I keep track of the market status differently than other people. My 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. Looking forward, this market looks strong as long as the benchmark S&P 500 holds above its 50 DMA line. As always, keep your losses small and never argue with the tape.

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