Market Insight

Central Banks Continue To Flood The System With Liquidity

Stock Market Commentary:
Friday, May 3, 2013

We changed the status from rally under pressure to confirmed rally in our Tuesday 4/23/13 update and noted that the bulls are back in control of this market. So far, every pullback this year has been very small 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. As we have noted before, the market bent but did break…yet.

Monday-Wednesday’s Action: Stocks Edge Higher Into Fed & ECB Meetings

Stocks were quiet on Monday after Italy announced a new recovery plan and the latest round of mixed economic and earnings data was released. Personal income rose +0.2% in March which missed the Street’s estimate for a gain of +0.3%. Elsewhere, personal spending rose +0.2% which beat the Street’s forecast for a gain of +0.1%. Pending home sales rose 1.5% which was better than the Street’s estimate for a gain of +1%.

Stocks rallied on Tuesday helping the benchmark S&P 500 hit a new record high as investors digested mixed earnings and economic data. The S&P/Case-Shiller composite index of 20 metropolitan cities surged +9.3%, enjoying its largest annual gain in seven years. Separately, consumer confidence rebounded to 68.1 in April as Americans felt more optimistic about the economy, housing and the jobs market. The report topped estimates for a reading of 60.8. On a negative note, the Chicago manufacturing index unexpectedly fell to 49 in April which was below the boom/bust level of 50.

Before Wednesday’s open, China said its Purchasing Managers’ Index (PMI) fell to 50.6 in April. This was the latest in a series of weaker-than-expected economic data from China and led many to question the health of the global economy. In the US, ADP, the country’s largest private payrolls company, said US employers only added 119k new jobs in April which missed the Street’s estimate for a gain of 155k. This was the lowest reading since September 2012 and was below March’s downwardly revised 131k reading. The ISM Manufacturing index fell to 50.7 in April which missed the street’s estimate for 50.9. Elsewhere, March Construction spending tumbled -1.7% vs +1.5% in February. The Fed held rates steady and largely reiterated their recent stance of keeping rates artificially low until the unemployment rate falls to 6.5% and inflation hits 2%. Looking at earnings, so far, over 60% of stocks in the S&P 500 have reported Q1 results and 70% have topped very low estimates.

Thursday & Friday’s Action: All Eyes On April’s Jobs Report

Before Thursday’s open, the ECB lowered rates to help stimulate their tepid economy. ECB president Mario Draghi said that the ECB was open to negative deposit rates which sent the Euro and a slew of European stock markets lower. In the US, weekly jobless claims fell by 18k to 324k which was below the Street’s estimate for 345k and fell to a 5 year low. Before Friday’s open, the Labor Department said US employers added 165k new jobs and the unemployment rate slid to 7.5% which is a four year low.

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. 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.

Become A Client
VISIT:
SARHANCAPITAL.COM
OR
FINDLEADINGSTOCKS.COM

Here are more articles you may like

Adam Sarhan

Host Of The #SmartMoneyCircle Podcast, Founder and CEO of 50 Park Investments. Adam provides weekly market updates to ChartYourTrade.com readers. He is a FORBES Contributor and is a frequent guest on all the major financial media outlets.

Claim Your Free Guide Today

Give us your email and we will give you the tools to change your life.

FREE 7 DAY EMAIL COURSE

Learn about Early Entry Points & much more...

Disclaimer: All communication from ChartYourTrade is general in nature and for educational and general informational purposes only. Under no circumstance should it be considered personalized investment advice. All our work is general in nature and not specific to any one person. All the information on this site and/or that originates from us, or any of our partners or affiliates, is for educational and informational purposes only and is NOT a recommendation to buy or sell anything. To avoid any conflicts of interest, we do not have a working relationship with any of the companies mentioned in our work. Furthermore, we may have a long, short, or no position in any, or all, of the names that appear in our work and they may change at any time without notice. Investing and trading in capital markets or using margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you as well as for you. Before you decide to invest or trade in capital markets you should carefully consider your investment objectives, level of experience, and risk appetite, among other factors. The possibility exists that you could sustain a loss of some, all, or more of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with capital markets, investing/trading, and seek specific investment advice from an independent financial advisor and other professionals. Remember all the information we provide is for educational and general informational purposes only and is subject to change without notice.

Charts and Data are courtesy of MarketSmith Incorporated. Join MarketSmith here.