Bulls Back In The Driver’s Seat
The stock market remains exceptionally strong. Once again, the latest pullback was another strong buying opportunity. The Dow Jones Industrial Average, Nasdaq Composite, and benchmark S&P 500 are all back above near-term support and, once again, flirting with new highs. This was another shallow/healthy pullback in both size (small percent decline) and scope (short in duration). Meanwhile, the two lagging areas: The Transports and the small-cap Russell 2000, both pulled back and found support near their respective longer-term 200 DMA lines. Now they are flirting with their 50 DMA lines.
When you step back and look at the bigger trend, the market remains exceptionally strong. Just take a look at the monthly chart of IWM (the ETF that tracks the Russell 2000) below. Remember, in a very strong bull market (present market included), weakness should be bought, not sold. Going forward, August’s low is near term support and the bulls remain in clear control until that level is broken.
A Closer Look at What Happened Last Week…
Energy stocks, specifically, refinery stocks, lifted the market higher on Monday as Hurricane Harvey flooded Houston and the surrounding areas. RBOB gasoline futures soared nearly 7% on Monday alone and continued to rally all week. The Dallas Fed manufacturing survey came in at 17.0, slightly higher than the Street’s estimate for 15. After Monday’s close, North Korea fired a missile over Japan and that lead futures to fall sharply overnight.
On Tuesday, stocks opened lower but closed higher which was a net positive and set the stage for the market to rally for the rest of the week. Japan’s Nikkei and South Korea’s Kospi indices both closed off their lows which was a subtle, but important, sign of strength.
On the economic front, the S&P Case-Shiller home price index grew by only +0.1%, missing estimates for a gain of +0.3%. Meanwhile, consumer confidence came in at 122.9, beating estimates for 120.6. Stocks rallied on Wednesday helping the S&P 500 jump back above its 50 DMA line. Technically, that was a very healthy sign. The ADP employment report showed private employers added 237k new jobs in August, beating estimates for 185k. Separately, GDP came in at 3%, beating estimates for 2.8% and that helps support the claim that the economy will grow better under President Trump.
Thur & Fri Action:
Stocks rallied on Thursday as the narrative shifted in D.C. to a tax cut. Chicago PMI came in at 58.9, slightly higher than the average estimate of missing estimates of 58.6. Meanwhile, Pending Home Sales fell by -0.8%, missing estimates for again of +0.4%. Before Friday’s open, the Labor Department said, U.S. employers added 156,000 new jobs in August, missing estimates for 180,000. Meanwhile,
Before Friday’s open, the Labor Department said, U.S. employers added 156,000 new jobs in August, missing estimates for 180,000. Meanwhile, unemployment rate came in at 4.4%, missing estimates for 4.3%.
Market Outlook: Bulls Are Back In Control
The bulls are back in control and the market remains very strong. As always, keep your losses small and never argue with the tape.