Bulls Defend Support
The market fell hard in the first few days of the week after a flurry of weaker-than-expected economic data in the U.S. hurt confidence. After a brutal few days, buyers showed up Thursday morning and aggressively bid the market higher. In fact, the market erased the entire week’s loss and ended the week mixed to slightly higher by Friday’s close. In fact, a few of the popular indices jumped back above their 50 DMA lines- which is a bullish sign. Looking forward, last week’s low is now the near-term level of support to watch and then the longer-term 200 DMA line for the major indices. On the upside, near-term resistance is 2019’s high.
Stocks rallied nicely on Monday which was the last day for the month and the quarter. After all was said and done, the market ended higher for both the month and the quarter which was encouraging because it was a volatile quarter on Wall Street. Political headlines dominated the market with the ongoing drama of the Trade War and the potential impeachment. In other “good” news, with all this drama, the market is only a few percentage points below its record high. That means, a few good days and we can easily breakout and start a new leg higher. Stocks opened higher on Tuesday but turned negative after the U.S. manufacturing index fell to the lowest level in 10 years. The Institute for Supply Management said U.S. manufacturing activity slid to its worst level since June 2009 and fell below the boom/bust level of 50. The ISM report follows the release of weak manufacturing data from Europe. Stocks plunged on Wednesday after the ADP, the country’s largest private payrolls company, said, US employers added a modest 135,000 private-sector jobs in September, which missed the Streets estimate and was another sign that hiring is slowing along with the broader U.S. economy.
Thursday & Friday Action:
Stocks opened slightly higher on Thursday but fell hard at 10 am EST after the ISM service index missed fell to the lowest level in 3 years. The ISM’s service sector index fell last month to its lowest level since August 2016 which caused the Dow to fall over 300 points right after the report was announced. Shortly after the report was announced President Trump tweeted some positive tweets regarding China and that was enough to help the market rally and close higher on the day. Before Friday’s open, the government said U.S. employers added 136,000 new jobs last month, missing estimates for a gain of 140,000. Meanwhile, the unemployment rate fell to a 50-year low of only 3.5%, beating estimates for 3.7%.
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 in September which are 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 appear to be moving in the right direction which is another positive. As always, keep your losses small and never argue with the tape.