Stocks Hit New Record Highs

STOCK MARKET COMMENTARY:
FRIDAY, MAY 17, 2013

Stocks hit another record high last week as this Central Bank driven rally continues apace. 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 keeps getting extended from its 50 DMA line.

Stocks were quiet on Monday after the there was little change in the rhetoric from the G7 about Japan’s aggressive easing policies. An article in the Wall Street Journal hinted that the Federal Reserve has begun to discuss a plan to taper off their aggressive QE (asset purchase) program. The article did not provide any additional insight to the details of the plan or the timing of the actual change in policy. The Fed has made it clear that they are going to stay the course until the unemployment rate drops to 6.5% AND inflation hits 2%. Separately, retail sales topped estimates and rose +0.1% in April after falling -0.5% in March.

Stocks rallied for the 18th Tuesday this year after Wall Street titan David Tepper, co-founder of Appaloosa Management, said that he is still bullish on the market and likes the fact that the economy is still growing. in Europe, German investor confidence rose less than expected in May according to the ZEW Center for European Economic Research.In the US, Export prices, excluding agriculture, fell by -0.5% in April after falling -0.2% in March. Excluding oil, import prices slid by -0.2%, which follows last month’s decline of -0.2%.

Stocks opened lower on Wednesday as investors digested a slew of lackluster economic data from across the globe. The Eurozone economy shrank in Q1 by -0.2% which was the 6th consecutive quarter of negative growth and the longest recession since records began in 1995. In the US, the producer price index (PPI) fell -0.7% in April, posting the largest drop in three years which sparked deflation, not inflation, woes. Meanwhile, The New York Federal Reserve’s “Empire State” general business conditions index slid to -1.43 in May from 3.05 in April. Industrial Production fell -0.5% in April, missing expectations for a dip of -0.2%. On the bright side, home builder confidence topped estimates (43) and rose 3 points to 44 in May.

THURSDAY & FRIDAY’S ACTION: US DOLLAR RALLIES AS COMMODITIES FALL

Stocks were quiet on Thursday as investors digested a slew of mixed to mostly weaker-than-expected economic data. Overnight, Japan said its economy topped estimates in Q1 but said deflation remains a concern. In the US, weekly jobless claims rose by 32,000 to a seasonally adjusted 360,000 which was the fastest pace in six months. Meanwhile, housing starts plunged -16.5% in April to a 853,000-unit annual rate, well below expectations for a 945,000-unit rate. Deflation remains a concern in the US. Consumer prices slid -0.4% in April which was the sharpest decline in more than four years, due to a drop in gasoline costs. Finally, the Philly Fed index slid to -5.2 vs a small gain of 1.3 in the prior month. It also missed the Street’s estimate for a reading of 2.4. This is very weak data. Imagine how much weaker it would be if the Fed wasn’t printing $4B/day! On Friday, stocks rallied after US Consumer Confidence Jumped to a 6-Year High In May. Confidence rose to 83.7 vs estimates of 78. Separately, Leading Indicators rose 0.6% which was the highest level in nearly 5 years and topped the Street’s estimate for a gain of 0.2%.

MARKET OUTLOOK: CONFIRMED RALLY

Stocks are by all normal measures getting extended in the near term and a light volume pullback into their respective 50 dma lines would do wonders for the bulls. 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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