Week-In-Review: First Down Week In Over A Month
The market finally pulled back last week after a very strong 7-week rally. During that 7-week period, the very short-term 10-day moving average line served as near-term support. That level was tested last week and defended by most of the major indices. In the short-term, the market still remains very extended to the upside and way over due to pullback. Next week is a shortened holiday week (Happy Thanksgiving), and then the end of the month (normally has an upward bias). So for now, the market continues acting very well as we head into the last few weeks of the year (which also has an upward bias). Stepping back, it would be very healthy to see a nice light volume pullback into the 50 DMA line to let the market digest the recent run. If that doesn’t happen, then we are setting up for the market to continue to grind higher.
Monday-Wednesday’s Action:
Before Monday’s open, CNBC reported that senior Chinese officials were not optimistic that a trade deal would get done and that led the futures to fall before the open. The mood was quiet most of the day as investors waited to see what would happen with respect to the trade deal and a slew of retail stocks are reporting earnings later in the week. Stocks fell on Tuesday, after Home Depot fell over -5% after reporting earnings. In other news, Trump threatened higher tariffs if China doesn’t make a trade deal which also didn’t sit well with investors. On Wednesday, stocks fell from record highs after Reuters reported a so-called phase one trade deal between China and the U.S. may not be completed this year. In other news, shares of Target gapped up after the company reported earnings.
Thursday & Friday Action:
On Thursday, the market was relatively quiet as investors digested the latest round of earnings and new reports about the U.S.-China trade war. Stocks rallied on Friday after President Donald Trump told Fox News both sides were “very close” to reaching a trade agreement, noting: “We have a very good chance to make the deal.” On the data front, consumer sentiment for November came in better than expected. The index rose to 96.8 from 95.5 in October. IHS Markit’s gauges for the U.S. services and manufacturing sectors also rose. This was the last full trading week for the month.
Market Outlook: Easy Money Is Back
Once again, global central banks are back on the easy money bandwagon after the Fed and the ECB both announced more easy money measures directly aimed at stimulating global markets. The market has soared all year based on two key points: optimism that a trade deal will be reached between the U.S. and China and more easy money from global central banks. Earlier this year, the Federal Reserve reversed its stance and moved back into the easy money camp. Then, other central banks followed suit and that means easy money is back to being front and center for the market. Separately, the trade talks are moving in the right direction which is another positive. As always, keep your losses small and never argue with the tape.
