S&P 500 Has Rallied in 10 Of The Past 11 Weeks

Not much changed last week as the riskon trade is alive and well as the major averages continue 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 Enjoys Longest Winning Streak Since 1996

Stocks rallied on Monday helping the DJIA hit another record high. Volume, and important indicator of institutional sponsorship, fell. Economic data from France and China disappointed investors. Industrial production in France sagged which is not ideal for the European economy. Meanwhile, CPI in China topped estimates which suggests inflation may be accelerating which in turn limits their central banks ability to stimulate their economy.

Stocks were flat on Tuesday as a slew of economic data from Europe was announced. Germany’s CPI rose 0.6% month-over-month which matched expectations. Meanwhile, CPI rose 1.5% on a year-over-year basis, also matching expectations. CPI in Italy and the UK were mixed. Other economic data points from Europe showed their economy continue to stagnate. Data Small business optimism in the US rose which bodes well for the economy.

The Dow Jones Industrial Averages enjoyed its first 9-day win streak since 1996 as the major averages and leading stocks continue to edge higher. Several leading stocks continued acting well beneath the surface which bodes well for the market. Transports were among the strongest groups of the day (JBHT, SWFT, IYT, etc) as other leading sectors (Financials, Housing, Healthcare) also fared well. Overseas, European factory activity slowed which hurt the euro and expectations for eurozone economic activity.

Stocks  rallied on Thursday helping the Dow enjoy its longest consecutive win streak since 1996. Before Thursday’s open, the Labor Department said weekly jobless claims unexpectedly fell by 10k to a seasonally adjusted 332,000. This bodes well for the labor market and was the third straight weekly decline. Elsewhere, the producer price index rose +0.7% in February which was the largest gain in 5 months as gasoline prices rose. The current account deficit narrowed to $110.4 billion last quarter which was less than the Street’s estimate for it to widen to $112.8 billion. European leaders met in Brussels to discuss austerity measures. Stocks were quiet on Friday after investors digested the latest round of economic data. The Consumer Price Index (CPI) rose 0.7% in February which was the largest headline gain since June 2009, after an unchanged reading in January. The gain was largely due to a jump in gasoline prices. Core prices which exclude food and energy rose 0.2% which was lower than January’s reading of 0.3% and helped allay inflation concerns.

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.