Stock Fall After Hitting Resistance:
Stocks ended the week mixed to mostly lower as the market fell after hitting resistance (200 DMA line). At this point, it is perfectly normal to see the market pullback to digest its recent rally. On a relative basis, the Dow is trading near its 200 DMA line and is outperforming its peers. Meanwhile, the S&P 500, Nasdaq Composite, Nasdaq 100, and small-cap Russell 2000 are all below their respective 200 DMA lines. For now, the 200 DMA line is serving as important near-term resistance while the 50 DMA line is near-term support. Furthermore, until either level is taken out, I have to expect this sloppy action to continue. The bulls want to see the market get – and stay – above its 200 DMA while the bears want to see it break below its 50 DMA. If it breaks above its 200, the next important level of resistance to watch will be 2018’s high. Conversely, if it breaks below its 50 DMA line, then the next important level of support to watch is December 2018’s low. For now, patience is king as we are still digesting earnings and the latest round of economic data.
Stocks edged higher on Monday as investors waited for another busy week of earnings to be released. After the close, Alphabet, Gilead Sciences, Seagate Technology, and Beazer Homes were some of the companies to report earnings. In other news, Senators Charles Schumer and Bernie Sanders are proposing a law that would put limit the amount of shares a corporation could buy back at a given time. On Tuesday, the market rallied as investors digested the latest round of earnings data and waited for President Trump’s State of the Union address. On Wednesday stocks pulled back as the major indices flirted with near term resistance near the 200 DMA line. Disney, Snap, and Plantronics were some of the stocks that rallied after reporting earnings.
Thursday & Friday Action:
On Thursday, stocks fell hard after the major indices slammed into resistance (200 DMA line) on Wednesday. At one point, the Dow fell over 300 points after President Trump said he will not meet with Chinese President Xi before the trade deadline. In other news, BB&T bought SunTrust in the country’s largest bank deal since the 2008 financial crisis. Stocks slid on Friday as investors digested the recent volatility.
Market Outlook: Watch Resistance
The market has turned around after the Fed reversed its stance and moved back into the easy money camp. Near-term resistance is the 200 DMA line for the major indices and then 2018’s high. Separately, near-term support is the 50 DMA line and then 2018’s low. As always, keep your losses small and never argue with the tape.