Market Insight

Stocks Breakout of Short-Handle

STOCK MARKET COMMENTARY:
FRIDAY, August 02, 2013

The major averages surged into fresh new high ground after last week’s Fed meeting. Additionally, it was encouraging to see them break out of small handle patterns on daily chart. This action is healthy and bodes well for the ongoing and very strong Fed induced rally. It is also very encouraging to see several important areas also confirm the bullish action and breakout of short handles and hit new multi-year or record highs such as: The Russell 2000, The S&P 400 and S&P 600, The Nasdaq 100, Transports, Financials, Biotechs, Health Care, just to name a few. As we have stated several times in the past, the key driver of this bull market is the easy-money sloshing around the globe from central banks and until that changes, everything else is secondary.

MONDAY-WEDNESDAY’S ACTION: Stocks Wait For the Fed

Stocks slid on Monday as investors awaited a very busy week for both earnings and economic data. Overnight, Asian stocks fell as fear spread that a credit crisis may be looming in the Far East. The National Association of Realtors said Pending home sales slid -0.4% in June, missing estimates for a gain of 1%. M&A activity picked up in the last week of July with nearly $40B in deals announced. Perrigo (PRGO) agreed to buy Elan (ELN) for $8.6B, Omnicom (OMC) agreed to merge with Publicis to create a new advertising conglomerate worth $35.1B, and Hudson’s Bay, parent company of Lord & Taylor, said it would acquire Saks (SKS) for $2.4B.

Stocks edged higher on Tuesday as investors digested a light day of economic data and a slew of mixed earnings reports. The S&P/Case-Shiller index jumped 2.4% in May & Year-over-Year Prices rose 12.2%. Facebook shares continued to soar after the social media giant said it launched a pilot program to “help small and medium size developers take their mobile games global.” Elsewhere, shares of many fertilizer stocks imploded after news broke that a Russian potash producer signaled an end to a global cartel.

Investors digested a slew of data on Wednesday and the latest Fed meeting. ADP, the country’s largest payrolls company, said U.S. employers added 200k new jobs in July, topping estimates for a gain of 180k. The government said GDP rose 1.7% in Q2 which topped estimates for a gain of 1%. Separately, the ISM Chicago Business barometer rose to 52.3 from 51.6 but missed estimates for a gain of 54. Finally, the Federal Reserve largely reiterated their recent stance to continue QE until the economy recovered. Mastercard (MA) and Visa (V) traded all over the map after a court ruled in favor of retailers.

Thursday & Friday’s Action: Stocks Are Strong

Stocks soared to fresh record highs on Thursday after the latest round of stronger than expected economic data was released. Overnight, China said its PMI unexpectedly rose to 50.3 in July, from 50.1 in June and topped estimates. the ECB remains cautious about the recovery and wants to see stronger economic growth before curbing their easy money policies. A separate report showed that European PMI also topped estimates which helped send European shares higher. Weekly jobless claims in the US fell to a 5 year low which bodes well for the jobs market and the ongoing economic recovery. Meanwhile, U.S. PMI jumped to a fresh two year high, easily beating estimates. Stocks were quiet on Friday after the government said U.S. employers added 162k new jobs in July, missing the estimates for 200k. On a positive note, the unemployment rate slid to a 5 year low and hit 7.4%. A separate report showed consumer spending rose 0.5% in June while personal income rose 0.3%. Finally, June factor orders rose 1.5%

MARKET OUTLOOK: STOCKS Hit New Highs

The Fed induced rally is alive and well after Bernanke did a 180 and shifted the narrative back to a world of infinite Fed money. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.

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Adam Sarhan

Host Of The #SmartMoneyCircle Podcast, Founder and CEO of 50 Park Investments. Adam provides weekly market updates to ChartYourTrade.com readers. He is a FORBES Contributor and is a frequent guest on all the major financial media outlets.

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