Mixed Week On Wall Street

SPX- Resistance Near 2011's High
SPX- Resistance Near 2011's High

Friday, March 02, 2012
Stock Market Commentary:

It was a busy week on Wall Street as investors digested a slew of data from across the globe and a massive sell-off in gold and silver on the last day of February. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. Since then, stocks have been enjoying a very strong uptrend. The benchmark S&P 500 jumped above its 2011 high and hit the highest level since 2008! The bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line. Leadership continues to improve which is another healthy sign.

Monday-Wednesday’s Action- February Ends on an Odd Note:

Over the weekend, the G-20 concluded their latest meeting in Mexico and told European leaders that they need to resolve their fiscal woes on their own. Initially, this put a little pressure on equities and other risk assets and added pressure on Germany, Europe’s largest economy, to save the so-called PIIGS. Euro zone countries are going to reassess the strength of their bailout fund in March. Until then, the ECB’s LTRO program appears to be picking up the slack. In the U.S., pending home sales surged +8.0% vs. January 2011 and hit a two-year high. Again, as we have said several times in our research, housing stocks appeared to have bottomed and look great here. If this continues, it is only a matter of time until the housing market recovers.

Stocks rallied on Tuesday after Italy sold a healthy amount of bonds at lower interest rates. U.S. economic data was mixed. It was discouraging to see that durable goods fell -4% in January 2012 which was the largest drop in three years. The S&P Case/Shiller index showed that home prices across much of the country fell -3.8% in Q4 2011 which brought home prices down to levels not seen since 2006. However, consumer confidence jumped to 70.8 from an upwardly revised 61.5 in the previous month. This easily topped the Street’s average estimate for a gain of 63.0.

Stocks opened higher on Wednesday after the Q4 GDP and the ECB’s second LTRO program topped estimates. 800 European banks borrowed 529.5 billion euros ($713 billion) which topped the Street’s estimate of 500 billion euros.  In the U.S., the latest Q4 GDP estimate rose to 3% from the initial estimate of 2.8%. This was the largest gain since the second quarter of 2010 and beat Q3′s 1.8% reading. Bernanke testified on Capital Hill and largely reiterated his recent stance regarding the ongoing economic recovery (with downside risk) and inflation remains in largely inline with his forecasts. Elsewhere, gold and silver both got smacked which bodes poorly for other risk-on assets.

Thursday and Friday’s Action- China’s PMI, EU MFG Contracts, & Spanish Yields Fall, &  U.S. Economic Data:

On Thursday stocks opened higher as investors digested a slew of economic data. China said its purchasing managers index (PMI) topped estimates in February. The index swelled to 51.0 which topped the Street’s estimate for 50.7 and January’s reading of 50.5. However, the final reading for the HSBC PMI was at 49.6, a touch higher than January’s reading of 48.8, but still under the boom/bust level of 50. Economic data in Europe was mixed. The Euro zone’s manufacturing sector contracted for the 7-consecutive month in February which increases the odds for the Euro Zone to fall into a recession later this year. The Markit’s Eurozone Manufacturing Purchasing Managers’ Index (PMI) rose to 49.0 last month which matched estimates but remains below the boom bust line of 50. Meanwhile, yields for Spanish debt fell which is a small sight of optimism for the debt-laden nation. Economic data in the U.S. was mixed. Jobless claims fell by 2,000 to 351,000 which bodes well for the rebounding jobs market. Personal income rose +0.3% vs +0.4% estimate while spending rose by +0.2%. On average, auto sales rose which is a net positive. Finally, the ISM MFG index unexpectedly fell to 52.4 which was the first decline in 3 months. Stocks were relatively quiet on Friday as investors digested a busy week on Wall Street.

Market Outlook- Confirmed Rally

Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December and are extended by any normal measure. At this point, all this means is that the odds for a pullback increase. However, markets can very easily go from overbought to extremely overbought so trade accordingly. As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!



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