WHEN HEADLINES FAIL TO TANK MARKETS….IT’S BULLISH!  

Once again, the market had every chance in the world to fall last week and the fact that it didn’t is very bullish. Even though it was a shortened holiday week it was a busy week of headlines nonetheless. The market opened on Tuesday with a big decline after the political turmoil in Italy was announced.  Then stocks rebounded nicely on Wed, fell on Thurs and rallied nicely on Friday after the jobs report was announced.

The Dow Jones Industrial Average ended slightly lower last week but near its highs for the week which is bullish sign. The small-cap Russell 2000 continues to lead its peers followed by the tech-heavy Nasdaq composite. For now, the action remains very healthy across the board and near-term support remains the 50 DMA line. As long as that level is defended, odds favor higher prices will follow. To be clear, the bulls remain in clear control until any serious selling shows up.

 

A CLOSER LOOK AT WHAT HAPPENED LAST WEEK…

Mon-Wed Action:

Stocks were closed on Monday in observance of Memorial Day.  On Tuesday they fell nearly 500 points after fear spread regarding the political situation in Italy. Over the long weekend, news spread that two political parties in Italy may not be able to build a coalition. This sent the euro -and global stock markets- sharply lower. If Italy can’t reach a deal the country will be forced into another shotgun election and the new party could vote to leave the EU.

Stocks rebounded sharply on Wednesday after the Italian two-year bond yields fell to 1.72 percent from 2.1 percent, which erased much of Tuesday’s climb. Separately, the small-cap Russell 2000 hit a fresh record high.

 

Thur & Fri Action:

On Thursday, stocks fell hard after President Donald Trump issued tariffs on the European Union, Mexico and Canada, sparking fears the U.S. could enter a trade war with some key allies. Once again, the selling was short-lived because stocks bounced back sharply on Friday and closed mostly higher for the week.

Before Friday’s open, stocks rallied after Trump tweeted that he is looking forward to the jobs report -before the report was released. Typically, the President is briefed on the number the night before so stock futures rallied sharply after the tweet. Indeed, the report was positive as U.S. employers added 223,000 new jobs last month and the unemployment rate fell to 3.8%, both readings beating estimates.

 

Market Outlook: Bullish Action

The small-cap Russell 2000 hit a new high which is bullish for the broader market. The other indices are acting well and still 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. On the downside, the big level of support to watch is the 200 DMA line and then February’s low. For now, as long as those levels hold, the longer-term uptrend remains intact. Conversely, if those levels break, look out below. On the upside, resistance is now 2018’s high.  As always, keep your losses small and never argue with the tape.