Second Weekly Gain On Wall Street

STOCK MARKET COMMENTARY:
FRIDAY, February 14, 2014

The market continues acting great considering how weak it was acting at the end of January. The benchmark S&P 500 is 0.6% below its record high which is very impressive. So far, this market continues to support our thesis that this is just another pullback within a broader uptrend. We would like to see the market sit for a while (to consolidate its recent rally off the Feb 5th 1737 low) but would not be surprised if it jumps into new high ground (because no one thinks it will). At its lowest point, the S&P 500 only fell 6.1% from its record high which is a blip on the radar when you step back and look at the bigger picture. The short, intermediate and longer term action still remains very healthy as the market simply paused to digest last year’s very strong gain. Furthermore, the bullish fundamental backdrop is still in place for stocks. The bulls are looking for two possible scenarios to occur: 1. The economy grows organically or 2. The Fed continues (or increases) QE to help the economy grow. Both scenarios are bullish for stocks in the longer term. The biggest concern is what happens when the law of diminishing returns kicks in and all the Fed printing doesn’t help Main St or Wall St anymore? My answer is to align ourselves with what is actually happening (we are in a bull market) and if and when that occurs- we’ll cross that bridge when we get there. Meanwhile, the short, intermediate and long term outlook remains very bullish as the major averages trade at/near new highs.

Monday-Wednesday’s Action: Buyers Are Strong

The major averages cautiously edged higher on Monday as investors waited to hear from the newly elected Fed Chair, Janet Yellen. Shares of Yelp (YELP) surged after the WSJ reported that Yahoo (YHOO) would include Yelp’s ratings of local businesses in its search results. Elsewhere, Mr. Icahn stepped back and publicly said he will not push AAPL to continue its share buyback program after other large investors told him to back off (by not supporting his argument).

Stocks surged on Tuesday after the Yellanator (1st to coin that term- let’s see if it sticks) testified on the Hill. This was Yellen’s first testimony on the Hill as Fed Chair. The best way to summarize her always exciting testimony: Print, Baby, Print. The stock market reacted very well to her comments as she helped allay any concerns that the Fed will turn its back on the economy. In her prepared remarks before the House Financial Services Committee, Yellen stressed continuity in monetary policy and said the recovery in the labor market is far from finished. This helped the tech-heavy Nasdaq turn positive for the year. Stocks were mixed on Wednesday as the major averages paused to digest the recent rally off the Feb 5 (1737) low. Procter & Gamble (PG) lowered their earnings outlook which put pressure on the DJIA.

Thursday & Friday’s Action: Stocks Edge Higher

Stocks rallied on Thursday after the S&P 500 bounced almost perfectly off its 50 DMA line (very healthy). The Labor Department said weekly jobless claims rose by 8k to 339k, topping estimates for 300k. Separately, the Commerce Department said retail sales slid -0.4% in January from December, missing expectations for an unchanged reading.  Stocks rallied on Friday after the Eurozone economy grew and beat estimates. This bodes well for the global economy. In the U.S., consumer sentiment was unchanged in February at 81.2, beating the 80.6 estimate.

MARKET OUTLOOK: Uptrend Defended

The market is following our script perfectly. This turned into another normal and healthy shallow pullback within a broader uptrend.  As always, keep your losses small and never argue with the tape.