Week-In-Review: Buyers Show Up After Bumpy Week
It was another wild week in the market but after everything was said and done the bulls still have the upper hand. The week started off weak, as the Dow Jones Industrial Average, S&P 500, and the small-cap Russell 2000 all pulled back and tested support near their 50 DMA lines. The Nasdaq Composite and the Nasdaq 100 are the stronger of the popular indices didn’t touch their 50 DMA lines and continue to outperform. For now, near term support is the 50 DMA line for the major indices. As long as that level holds, the bulls remain in clear control. Separately, the S&P 500 is forming a bullish head and shoulders pattern and a break above April’s high will signal a new leg higher.
Stocks opened lower but closed mixed to mostly higher on Monday as buyers showed up right after the open. Once again, the Nasdaq and Nasdaq 100 type stocks led as the other popular indices lagged. The market opened higher on Tuesday but reversed and closed lower causing the Nasdaq to snap a 6-day winning streak. The Dow fell over 400 points but the real weakness was in the S&P 500 and the Nasdaq. The market was very extended and way over due to pullback. In other news, House Democrats unveiled a new $3 trillion coronavirus relief bill that includes a second round of $1,200 checks and more aid for other areas of the economy. In other news, legendary investor Stanley Druckenmiller said the risk-reward in the stock market is the worst he’s ever seen. Stocks fell hard on Wednesday after Jay Powell said there are unprecedented risks to the economy. A few hours later, billionaire investor David Tepper said this is the second-most overvalued stock market he’s ever seen behind 1999 and that sent stocks tanking.
Thursday & Friday Action:
Stocks opened lower but closed higher on Thursday after the bulls showed up and defended the 50 DMA line for the Dow and the Russell 2000. The S&P 500 came close to the 50 DMA line but didn’t touch it. Meanwhile, the Nasdaq and Nasdaq 100, the stronger indices, found support near their 21 DMA line. In economic news, jobless claims topped 36.5 million over eight weeks, according to the latest data, which showed that nearly 3 million people filed just last week. On Friday, the market opened lower but closed higher after retail sales plunged and tensions rose between the U.S. and China.
Market Outlook: Flood The System With Liquidity
Global governments and global central banks stepped in with massive rate cuts and other “aid” packages to help “stimulate” both Main Street and Wall Street. So far, it is working as intended. As long as March’s lows hold, the market will likely move sideways to higher. On the other hand, if March’s lows are breached, then look out below. As always, keep your losses small and never argue with the tape.