Stocks are strong. Small and mid-cap stocks led the way higher last week as the small-cap Russell 2000 ($IWM) and mid-cap S&P 4o0 ($MDY) broke out of big bases. For now that is bullish action and illustrates strong appetite from investors of all size. Meanwhile, the popular indices paused to digest a very strong election week rally. Remember, there are two ways for a market to consolidate a recent rally, either move sideways or move lower. Right now, the market is moving sideways to higher which is the more bullish scenario. Additionally, it is healthy to see small weekly bull flags emerging in many important sectors – which could resolve themselves higher if the bulls remain in control. Until we see any technical damage emerge, weakness should be bought, not sold.
A Closer Look at What Happened Last Week…
Stocks opened higher on Monday, briefly dipped lower than edged higher to mixed by the close. The Nasdaq lagged for most of the day. President- Elect Donald Trump said in a 60 Minutes interview that he wants to unify the country. In other news, mortgage rates jumped to 4% since the election.
Stocks were relatively quiet on Tuesday and closed higher as oil prices jumped 5% on renewed hope OPEC will cut production. Elsewhere, shipping stocks soared and the Nasdaq bounced back after lagging hard since the election. Stocks ended mixed on Wednesday as the Dow snapped a 7-day win streak. Before the open, mortgage applications tanked by 9% as mortgage rates spiked higher. A separate report showed Home Builder sentiment remained steady. Inflation remained at bay as the producer price index came in unchanged, missing estimates for a gain of 0.3%. Finally industrial production for October was also unchanged, missing estimates for a gain of 0.1%. For the second straight day Nasdaq and Nasdaq 100 type stocks out-performed the Dow & S&P 500.
Thur & Fri Action:
Stocks were relatively quiet on Thursday as investors digested Yellen’s testimony, and the latest round of mixed earnings and economic data. Yellen made the case for raising rates in December and said she intends to finish her term. Economic data was mixed. Housing starts jumped by 25% last month which might slow now that mortgage rates have spiked. Weekly jobless claims fell to their lowest level since November 1973 which bodes well for the jobs market. Meanwhile, October CPI rose 0.4% which matched estimates. Earnings data was mixed, Wal-Mart (WMT) fell after reporting lousy numbers while shares of Best Buy (BBY) rallied sharply after beating on both the top and bottom line. Stocks were quiet on Friday as the market paused to digest the recent and robust election rally.
Market Outlook: Tape Is Resilient
The market remains very strong and the fact that it rallied since the election shows us the bulls are still in clear control of the market. As always, keep your losses small and never argue with the tape.