Stocks remain very strong as the bulls continue to defend the short term 10 day-moving-average line for the major indices. The big news last week and last quarter is that easy money from global central banks is here to stay. For now, stocks continue to worship easy money and until that changes, the bulls are fighting to stay in control. Q1 2016 was a historic quarter by any normal measure and a very difficult quarter for most portfolio managers. Stocks experienced their weakest open to a year – ever. Then, had the Dow Jones Industrial Average had the strongest quarterly reversal since 1933!
Gold, Silver, and other Commodities Soar
The story began with Gold and silver. Gold and Silver soared last quarter and are one of the strongest asset classes so far this year. Interestingly, Gold and Silver placed a near term low in December, and are trying to bottom after a 5 year brutal bear market (Gold and Silver have been falling since the end of 2011!). Then, on January 20th, a slew of other beaten down areas turned higher and are trying to bottom after multi-year bear markets. These areas include almost all the areas that have not been working over the past 18-36 months: Steel ($SLX), Transportation ($IYT), Materials ($XLB), Energy Stocks ($XOP, $XLE, $OIH), Emerging Markets ($EEM), just to name a few. For obvious reasons, we will be watching the aforementioned areas closer as a “tell” for the market. Then, on Feb 11th, oil and the major indices finally placed a near term low and soared into the end of March! Oil soared 63% in 5 weeks which is a huge move for a major global commodity.
Major Moves on the Major Indexes
The S&P 500 soared 14.48% since the Feb 11th low and is now only -3.4% below a record high! Remember, in normal (non easy money) times, a 10% move for an entire year used to be considered healthy. We just had the S&P 500 soared nearly 15% in 6 weeks! Since the Feb 11th low, the bulls have done their best to defend the short term 10 DMA line for the major indices. We now enter earnings season which is the next big catalyst for investors. On the other hand if this turns out to be a huge bear market rally, we would be remiss not to note that most bear market rallies last between 4-10 weeks and we just finished week 7 (something to keep in the back of our mind). We know easy money has greatly distorted the playing field so, for now, until we see selling show up, the bulls have earned the benefit of the doubt.
This Week in the Market…
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Monday-Wednesday’s Action: Yellen Boosts Stocks
Stocks were relatively quiet on Monday as many overseas markets were closed for Easter and string of terror related events occurred. Over the weekend, a bomb exploded in Pakistan which killed 70 people at an Easter celebration. At 2:39pm EST, gunshots were reported in the U.S. Capitol visitors center which caused much of D.C to lock-down. The shooter was immediately apprehended and it appears to be a lone wolf situation. An hour later, NYPD shut down a portion of The Marriott Marquis in Times Square due to a suspicious package. Then around 4pm EST, Miami International Airport shut down Terminal A due to suspicious activity. Thankfully, the latter two were nothing serious. Economic data was mixed. Pending home sales rose by 3.5%, beating estimates for 1.5% in February. The Midwest led the way higher, as sales jumped 11.4%. Sales out West and in the South were also higher. The Dallas Fed Manufacturing’s general activity index jumped 18 points but was still in negative territory. The general activity index came in at -13.6, higher than the prior reading of -31.8. U.S. consumer spending rose slightly in Feb and matched estimates. In M&A news, shares of Starwood (HOT) rallied after the company received a higher $14 Billion Offer From China’s Anbang-Led Group. Stocks opened lower and closed higher on Tuesday after Yellen came out and reiterated her dovish stance.
Before Tuesday’s open, An EgyptAir flight was hijacked and thankfully was resolved quickly with no injuries. The hijacker surrendered and it appears to be an isolated incident related to the man’s ex-wife. Much of D.C. was on lock-down again after Capitol Police were called in to investigate two suspicious packages. Economic data was mostly positive. The Case-Shiller Index rose 5.7% year-over-year which helped the ailing housing market. Lennar (LEN) also rallied after reporting numbers. Meanwhile, Consumer Confidence rose to 96.2, beating estimates for 94. Yellen spoke at noon and largely reiterated her recent stance. Stocks opened higher on Wednesday but lost steam mid-day as some profit-taking showed up before the end of the month and quarter on Thursday. Before Wednesday’s open, ADP, the country’s largest private payrolls company, said private employers added 200,000 new jobs in February, almost matching the forecast for 203,000. The EIA said crude oil inventories grew by 2.3 million barrels to yet another record high of 534.8 million last week.
Thursday-Friday’s Action: Bulls Fight For Control
Stocks were relatively quiet on Thursday which was the last trading day of the month and quarter. This was a historic quarter by any normal measure. The major indices had the worst start ever to a year, then stocks reversed and the Dow had the largest positive reversal since 1933! With all the stock and oil volatility in 2016, gold shined and enjoyed its best quarter in close to 30 years! In other news, the popular rating agency, Standard & Poor’s cut their outlook for China’s credit rating to negative from stable. The rating agency said China’s economic re-balancing will take longer than the firm had previously expected. Friday was a bullish defensive day. Stocks rallied on Friday as the bulls showed up and defended the short term 10 DMA line for the major indices. Before Friday’s open, the government said U.S. employers added 215k (205k est) new jobs and the unemployment rate ticked higher to 5%. The ISM manufacturing index and consumer sentiment also beat estimates. Elsewhere, selling showed up in Japan’s Nikkei and in the oil market. Oil prices fell 4% after Saudi Arabia said they are not willing to freeze output unless Iran freezes. Iran has made it clear that it will not freeze so that put pressure on oil prices.
Market Outlook: Easy Money Back In Play
The market remains very strong as the bulls continue to defend the short term 10 day moving average line for the major indices. As long as this continues, the market deserves the bullish benefit of the doubt. On the other hand, if this is indeed a bull trap (bear market rally) this is one of the strongest we have seen in ages. As always, keep your losses small and never argue with the tape.
