Week In Review: Pullback Continues On Wall Street
The long overdue pullback that I outlined for you several times since August continued as the major indices and several leading (a.k.a. alpha) stocks are flirting with their 50 DMA lines. In fact, the Nasdaq 100, which is the strongest index, is testing its 50 DMA line for the first time since the uptrend began in late March! Remember, it is perfectly normal and healthy to see the major indices (and leading stocks) test their 50 DMA lines several times as they rally. The Nasdaq 100 broke its 50 DMA line on Friday which is not the end of the world, but it is not a healthy sign. If the bulls can’t show up (quickly) and get the Nasdaq 100 above its 50 DMA line, then odds favor lower prices will follow and I get a lot more defensive. The key now is to make sure the 50 DMA line holds because if it doesn’t then lower prices could easily follow.
Stocks were closed on Monday in observance of Labor Day. On Tuesday, stocks fell hard as tech stocks, once again, dragged the broader market lower. Shares of Facebook and Amazon both fell over -4% and Alphabet dropped 3.6%. Microsoft and Apple were down 5.4% and 6.7%, respectively. Netflix lost just under -2%. On cue, the bulls showed up and defended the 50 DMA line for the major indices and a slew of leading stocks. That is exactly what you want to see happen when the market pulls back and tests support. Remember, this is the first serious test of the 50 DMA line since the uptrend began in late March!
Thursday & Friday Action:
Before Thursday’s open, the European Central Bank decided on printing more money and stock futures rallied on the news. The market opened nicely higher but sellers showed up and stocks closed sharply lower. It was another painful day for tech stocks as they dragged the broader market lower. Stocks opened higher on Friday but closed mixed on the anniversary of 9/11.
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.