The S&P 500 is forming a bullish 3-weeks tight pattern as the major indices pause to digest the recent post-election rally. So far, the action remains very healthy as sellers remain on the sidelines. The Dow notched its 7th straight weekly gain and is on track to end 2016 on a strong note. As we have highlighted for you over the past few weeks, the market is very extended and is simply consolidating its recent (and robust) rally. The quiet action we have seen over the past few weeks is very healthy as the Dow continues to trade just below 20,000. The big question for me is not IF the Dow can break above 20k… Rather can it STAY above 20k when it eventually does break above it? Remember, we are in a very strong bull market and until we see any meaningful selling, the bulls remain in clear control.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks edged higher on Monday after two separate terror attacks occurred in Germany and Turkey. The Russian Ambassador to Turkey was shot and killed while he was visiting an Art Gallery in Turkey. Separately, several people died after a truck crashed into a Christmas shopping market on the west side of Berlin. In economic news, the flash U.S. Markit PMI services for December came in at 53.4, which was slightly lower than November’s reading of 54.6. Finally, Fed Chair Janet Yellen gave a speech and said the U.S. has the strongest jobs market in nearly a decade, and there are indications wage growth is picking up. Stocks rallied on Tuesday, helping the Dow Jones Industrial Average come within striking distance of 20,000. On Wednesday, stocks were very quiet as the Dow Jones Industrial Average hovered just below 20k. Healthcare stocks lagged and oil turned negative after a surprise build in stockpiles. Economic data was very light, existing home sales for November, hit 5.61 million units, beating estimates for 5.535 million. Year-over-year, existing home sales swelled by 15.4%. A separate report showed weekly mortgage applications rose 2.5%.
Stocks rallied on Tuesday, helping the Dow Jones Industrial Average come within striking distance of 20,000. On Wednesday, stocks were very quiet as the Dow Jones Industrial Average hovered just below 20k. Healthcare stocks lagged and oil turned negative after a surprise build in stockpiles. Economic data was very light, existing home sales for November, hit 5.61 million units, beating estimates for 5.535 million. Year-over-year, existing home sales swelled by 15.4%. A separate report showed weekly mortgage applications rose 2.5%.
Thur & Fri Action:
Stocks were quiet on Thursday as the Dow continued to trade just below 20,000. Economic data was mixed. Initial jobless claims rose to 275,000 last week, missing estimates for 256,000. Separately, durable goods for November slid by -4.6%, which estimates for -4%. On the positive side, the final read for Q3 GDP was +3.5%, beating the Street’s estimate for +3.2%. Earnings data was light but Micron (MU) gapped up while Red Hat (RHT) gapped down after releasing earnings. The major indices were very quiet today as they pause to digest the recent and strong post-election rally. Stocks were quiet on Friday after President-Elect Trump said: I got a ‘very nice letter’ from Putin about improving relations.
Market Outlook: Strong Action
Once again, central banks came to the rescue and sent stocks racing higher. The ECB extended QE in December and will print another 2.4T to stimulate markets and the global economy. The U.S. Fed raised rates to only 0.50%, which, historically, is still very low. As always, keep your losses small and never argue with the tape.
