The market is acting much better after another very brief pullback in both size (% decline) and scope (weeks, not months). Several of the external “fears” that plagued Wall Street since early August have eased. Last week Syria agreed to surrender its chemical weapons so that helped offset concern for an imminent attack. The Fed meets next week so we’ll have to wait-and-see what happens with respect to tapering QE. Finally, a few steps have been taken by Congress to help prevent a government shutdown due to the impending debt limit We are watching very closely further deterioration because so far the first 8 months of 2013 are eerily similar to 1987.
1987 VS 2013: A QUICK LOOK
It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness.
MONDAY-WEDNESDAY’S ACTION: Stocks Continue To Bounce
Stocks rallied on Monday, helping the tech-heavy Nasdaq composite and Nasdaq 100 (QQQ) jump to a fresh 2013 high. The benchmark S&P 500 index jumped above its 50 DMA line and the middle of its 7-week double bottom pattern, both bullish signs. Overnight China said its exports rose by 7.2% in August which topped estimates for a 6% gain. The stronger-than-expected data bodes well for the global economy. Separately, fear eased regarding the situation in Syria after Secretary of State John Kerry said a “resolution” would not be found on a battlefield. On the economic front, the Federal Reserve said US consumer credit growth rose at a 4.4% annual rate in July expanding by $10.4 billion, down from a 5% rate in June. This beat the Street’s estimate for $12.5 billion.
Stocks rallied on Tuesday after better than expected data was announced from China and fear eased for an imminent strike on Syria. Goldman Sachs (GS), Nike (NKE), and Visa (V) were added to the Dow Jones Industrial Average replacing Alcoa (AA), Bank of America (BAC), and Hewlett-Packard (HPQ). In China, Industrial output, retail sales, and fixed income investment all beat estimates which bodes well for the global economy.
Stocks ended mixed on Wednesday after Apple (AAPL) slid 5% on the heels of their latest product announcement. After the close, Billionaire investor, Carl Ichan, said he was buying more shares of Apple as prices fell and that this is his best idea right now. In other news, Syria accepted Russia’s proposal to hand over their chemical weapons to an international agency which helped easy geopolitical woes in that region. Mortgage applications slid last week as rates hit their highest level for the year. Separately, refinancing activity plunged to the lowest level in four years.
THURSDAY & FRIDAY’S ACTION: Stocks Digest The Recent Move
Stocks were quiet on Thursday as the market paused to digest the recent gain. The big news came from the political front after Vladimir Putin published an Op-Ed in the NY Times. The letter was a political slap in Obama’s face and one person on twitter said Putin is now doing donuts in the White House lawn. Speaking of Twitter, the company filed for an IPO sometime next year. Disney (DIS) helped the DJIA rally after it announced a $6-$8 billion share buyback. The yearlong back-and-fourth saga ended when Dell’s board agreed to Michael Dell’s plan to take the company private. Economic data was relatively light. The Labor Department said weekly jobless claims slid by 31k to a seasonally adjusted 292k but the data was thrown off by a “processing glitch.” An analyst from the Labor Department said the majority of the decline appeared to be because two states did not process all the claims they received last week. Elsewhere, export prices slid -0.5% in August falling for the sixth consecutive month.
Stocks rallied were quiet on Friday after the latest economic data was mixed to somewhat softer than expected which lowered the odds for the Fed to taper aggressively next week. We find it funny that one of Bernanke’s goals was to make the Fed more transparent, not less. Wednesday’s Fed meeting is the most anticipated Fed meeting this year because no one has a clue what is going to happen (so much for transparency). Retail sales only rose by 0.2% in August which missed estimates for a gain of 0.4%. The first reading for September consumer sentiment slid to 76.8, missing estimates for 82. The Producer price index (PPI) rose 0.3% in August, just above the 0.2% estimate.
MARKET OUTLOOK: 50 DMA LINE IS Support
The market looks much healthier now that all the major averages are back above their respective 50 DMA lines. Please note that 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.