S&P 500 Closes Above 7-Week Downtrend Line & 50 DMA

STOCK MARKET COMMENTARY:
Friday, July 05, 2013

The major averages rallied for a second straight week helping the major averages close back above their respective 50 DMA lines. The strong bull market that we are experiencing continues to be driven by easy money policies from global central banks. That said, the US Fed continues to print $4B/day and other central banks around the world are showing no signs of backing off. On Friday, the S&P 500 closed back above its 50 DMA line which was a healthy event. The next near term level of resistance is its 7-month upward trendline which began in November.

Stocks rallied on Monday, helping the S&P 500 jump back above its 50 DMA line. Investors digested a slew of mostly positive economic data which helped the bulls. Overnight, corporate sentiment in Japan beat estimates and turned higher for the first time in two years. Eurozone manufacturing activity beat estimates and stabilized in June which sparked speculation that the ECB may tighten monetary policy. Finally, the ISM manufacturing index jumped to 50.9, topping estimates for 50.5. On the downside, industrial activity in China missed estimates and continued to decline in June. Meanwhile, the employment component of the U.S. ISM manufacturing index fell to the lowest level since September 2009.

Stocks opened higher on Tuesday as investors digested the latest round of mixed economic data. Overseas, Australia’s Central Bank left rates steady at 2.75%, reiterated their easy-money stance, and said the Aussie dollar remained at elevated levels. In the US, factory orders rose by 2.1% in May, topping estimates for a 2% gain. Meanwhile, car sales also beat estimates and rose nicely in June. Finally, New York Fed president William Dudley reiterated his stance that the Federal Reserve continue to support the economy for the foreseeable future.

Stocks opened lower on Wednesday as investors digested a slew of economic data from across the globe. Turmoil continued in Egypt which sent crude oil vaulting above $100/barrel for the first time since September. China’s official service sector PMI missed estimates and fell to its weakest level in nine months. Fresh concerns spread in Europe after several key government officials resigned in Portugal as it approaches tough austerity cuts. On average U.S. economic data was mostly positive. Weekly jobless claims slid by 5,000 to a seasonally adjusted 343,000. ADP, the country’s largest private payrolls company, said U.S. employers added 188k new jobs in June which beat estimates for 160k. A separate report showed that the U.S. trade deficit widened in May to $45.03 billion from $40.15 billion in April, thanks in part to stronger imports. Finally, the June ISM Non-Manufacturing Index fell to the lowest level since February 2010 and hit 52.2, missing estimates for 54.0.

Thursday & Friday’s Action: July 4th & Jobs Beat Estimates

U.S. stocks were closed on Thursday in observance of the July 4th holiday. Overseas, European stock market soared after the Bank of England and The European Central Bank met and reiterated their easy-money stance. Before Friday’s open, the Labor Department said U.S. employers added 195k new jobs in June easily beating the estimates as the unemployment rate remained steady at 7.6%.

MARKET OUTLOOK: Market Closes Above 7-week Downtrend Line & its 50 DMA line

The narrative has shifted since the May 22, 2013 high (when Bernanke and the Fed hinted that they may taper QE sooner than initially expected). Our 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. As always, keep your losses small and never argue with the tape.

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