The riskon trade is alive and well as the major averages continues racing higher. The last pullback was shallow in size and scope. The S&P 500 pulled back 2.9% after the minutes from the Fed’s last meeting hinted that QE might end sooner than originally expected. The pullback lasted less than 1 week because Bernanke made it clear when he testified on the hill that the benefits of QE outweighed the costs. For weeks we have been saying that we want to analyze the health of the pullback and so far the pullback was very healthy because it was short in both size and scope. Going forward, the 50 DMA lines are support for the major averages.
Monday-Wednesday’s Action: DJIA Hits Record High
Stocks opened lower but closed higher on Monday after the major averages shrugged off news that China, one of the fastest growing economies in the world, was trying to curtail their real-estate market. The fact that the US stock market refuses to fall illustrates how strong the bulls are right now. The US stock market continues to be one of the most attractive asset classes in the world. Underneath the surface, we are seeing- The Great Mini Rotation (GMR). The GMR is a term I coined that describes the sheer strength we are seeing within the US stock market. When this rally began in the middle of November- we saw financials and housing stocks lead the way higher. Then in early January, they paused to digest their robust gains and we saw leadership “rotate” to a slew of other sectors (transports, consumer discretionary, to name a few). As long as the GMR continues- this market will most likely continue to advance.
Thursday & Friday’s Action: Bulls Are In Control
Stocks rallied on Thursday as investors digested a slew of data. The Bank of England (BOE) decided to hold rates steady and did not expand their QE. The European Central Bank (ECB) also held rates steady at a record low of 0.75 percent. Mario Draghi called on local governments to hold structural reforms to help stimulate their stagnate economies. The Euro rallied on the news as fear waned. In the US, a slew of data was released. Weekly jobless claims unexpectedly fell by 7k to 340k which bodes well for the jobs market. The four-week moving average also fell by 7k to 348,750 which was thte lowest level since March 2008. The US trade deficit grew by almost 17% to $44.45B in January from a revised $38.14B in December 2012. Finally, productivity fell at a -1.9% annual rate in Q4 2012 which was the fastest pace in nearly four years. Before Friday’s open, the Labor Department said U.S. employers added 236k new jobs as the unemployment rate fell to 7.7%. Both numbers topped estimates which bodes well for the ongoing economic recovery.
Market Outlook: Uptrend
The market is strong as the bulls continue to quell the bearish pressure. Until the market breaks and closes below its 50 DMA line- the bulls deserve the benefit of the doubt. As always, it is extremely important to be flexible in your approach and change when the facts change (Thank you Mr. Keynes). For those of you that are new to our work, on October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Immediately after that note was published, stocks fell sharply and a lot of technical damage occurred. Then we put out a note on Friday, November 16, 2012 (the exact low for this move) titled, “Time For A Bounce” and the rest is history. Most recently, on Wednesday, February 20, 2013 we sent out a note saying, “Time For A Pullback” and a week later on Feb 27, 2013 we sent a note saying “Bulls Quell Bearish Pressure.” Stay tuned as we will continue to keep you in sync with the market and ahead of the crowd. As always, keep your losses small and never argue with the tape.