Remember ladies and gentlemen, stocks do not go up forever! Even in very strong bull markets (present market included) it’s perfectly normal and healthy to see the market pullback and digest a recent rally. Last week, the major indices ended lower and the benchmark S&P 500 and Dow Jones Industrial Average both snapped a very strong 8-week win streak. One relatively small down week after 8 strong up weeks is perfectly normal. The key now is to analyze the health of this pullback to see if it turns into another small/healthy pullback or something more severe.
The first big level of support to watch for the major indices is the 50-day moving average line. As long as the market stays above that level, the bulls remain in clear control. I welcome this pullback with open arms and will look to buy the bounce after this pullback is over.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks closed at fresh record highs on Monday after Broadcom (AVGO) offered to buy Qualcomm (QCOM) for $70 a share. If completed, the deal would be the largest tech deal… ever! Separately, shares of Advanced Micro Devices ($AMD) jumped on deal-making news and Disney (DIS) hinted it would want to acquire 21st Century Fox (FOX).
Stocks fell on Tuesday after financials dragged the market lower. Separately, shares of Priceline (PCLN) gapped down after reporting earnings. Overnight, Democrats won a few big races which put some pressure on the GOP. Financials and junk bonds (JNK) continued to fall which put pressure on the market. Financials are under pressure from a flattening yield curve. Stocks edged higher on Wednesday.
Thur & Fri Action:
On Thursday, the Dow fell as much as 250 points intra-day (but ended down 101 points) – after fear spread that the tax bill will be delayed. The small-cap Russell 2000, has been under pressure recently because small-cap companies have more to gain from an immediate domestic tax cut since they are more likely to be U.S.-based and not have a huge multi-national footprint. Stocks were relatively quiet on Friday as the market digested a busy week of data.
Market Outlook: Bulls Are Strong
The bulls are back in control and the market remains very strong. As always, keep your losses small and never argue with the tape.
