The bulls regained decisive control of the market last week after the major indices turned positive for the year and jumped above near-term resistance. The Dow & S&P 500 both jumped above near-term resistance (50 DMA line). We have highlighted resistance at the 50dma several times in this report for you in recent months. Going forward, the bulls want the 50 DMA line to become support as the market is now getting a little extended in the short-term.
In other (bullish) news, it is very positive to see the small-cap Russell 2000 rally all the way back up to it’s 2018 high! Typically, small-cap stocks are a good barometer for broader risk appetite and the fact that the Russell is back at new highs bodes well for the other popular averages.
A CLOSER LOOK AT WHAT HAPPENED LAST WEEK…
Stocks rallied on Monday as investors prepared for another busy week of earnings. Over the weekend, thousands of investors flocked to Omaha to attend Warren Buffet’s annual meeting. Buffet outlined succession plans and discussed a few of his bigger investments such as Apple and Wells Fargo.
On Tuesday, stocks opened lower but closed flat after President Trump pulled out of the Iran deal. In corporate news, Comcast upped its bid to buy assets from Fox. On the earnings front, several high profile companies reported earnings and – so far – most continue to beat estimates. After the bell, Disney reported and the stock was flat. Disney said it is still interested in buying the fox assets as it moves more of its content to market directly to the consumer.
Stocks opened higher on Wednesday after the latest round of earnings were released. Technically, the S&P 500 and Dow Jones Industrial Average both tried trading above their respective 50 DMA lines which have served as near-term resistance in recent weeks.
Thur & Fri Action:
On Thursday, stocks rallied nicely as the market digested the latest round of earnings and economic data. On average earnings continued to beat estimates which is a healthy sign. On the economic front, inflation came in less than expected which eased pressure on the Fed to raise rates in the future. That is a welcomed sign for the bulls. Stocks were relatively quiet on Friday as the market digested a big run off the 200 DMA line over the past week.
Market Outlook: Bulls Defend Support
The market is 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 February’s low and the 200 DMA line. 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.