This was an important week on Wall Street. The Bulls showed up and defended the longer-term 200 DMA line which is important support for the major indices. Stocks ended lower last week as fear spread that a trade war may derail the global economy and adversely affect corporate earnings. This is a critical time for the market because if support can’t hold, then odds favor this turns into a large top and we could easily fall into a long-overdue bear market.
For now, the next two important areas to watch are the 200 DMA lines and then Feb’s low. To keep it really simple, as long as support holds, we are likely to move sideways or higher. Conversely, if Feb’s lows are breached then odds favor we are going to fall the dreaded -20% which would signal a bear market. The next big catalyst is earnings season which is supposed to be strong. So if earnings fail to impress- that could also hurt the market.
A CLOSER LOOK AT WHAT HAPPENED LAST WEEK…
Mon-Wed Action:
Stocks were smacked hard on Monday causing the market to experience its worst start to the second quarter since the Great Depression. At one point, the Dow was down over 700 points but, thanks to a late-day rally, ended down about 500 points. That may have been an important near-term low for the market as many bulls finally capitulated and the market successfully tested important support (200 DMA line for the S&P 500).Thur & Fri Action:
On Thursday, stocks continued to bounce as the bulls showed up and added to Wednesday’s rally. On the economic front, weekly jobless claims came in at 242,000, higher than the Street’s estimate for 225,000. Even the slight uptick was written off because claims are still near their lowest levels since the 1970s. Before
Friday’s open, the Labor Department said U.S. employers added 103k new jobs which missed estimates for 175k. Separately, the threat of the trade war increased after the rhetoric between Beijing and the White House intensified.
Market Outlook: Bulls Try To Defend Support
The market is trading between important resistance (2018’s high) and important support (February’s low). Until either level is broken, I have to expect this sloppy, sideways action to continue. The big level of support to watch is February’s low and the 200 DMA line for the major indices. For now, as long as those levels hold, the longer-term uptrend remains intact. Conversely, if those levels break, look out below. As always, keep your losses small and never argue with the tape.
