Stocks ended lower last week as the market simply pauses to consolidate a very strong post-election rally. The major indices were very extended from the norm and are simply pulling back a little to consolidate a very strong rally. The small-cap Russell 2000 pulled into its 50 DMA line, which is the next logical area of support. Other strong sectors such as the: Transports, Financials, Materials, Steel stocks, are doing the same. So far, this is considered healthy action but if the selling gets worse, and the 50 DMA line is broken, then the bulls will have lost control in the near term. The good news for the bulls is that the Dow Jones Industrial Average, S&P 500, and The Nasdaq Composite are all still above their respective 50 DMA lines.
A Closer Look at What Happened Last Week…
Mon-Wed Action:
Stocks were closed in the U.S. on Monday in observance of the MLK holiday. Overseas, markets fell on Monday after rumor spread that England would seek a hard Brexit. Stocks in the U.S. fell on Tuesday dragged lower by the financials. The U.S. dollar fell hard after President-Elect Donald Trump said in an interview that the U.S. dollar was too strong.
Thur & Fri Action:
Stocks fell on Thursday as investors digested the latest round of economic and earnings data. Shares of Netflix (NFLX) gapped up after the company said it is investing $1 billion in original content and posted strong subscriber growth. Several Trump cabinet nominees testified before Congress and so far everything seems to be going smoothly.
Economic news was mixed. Weekly jobless claims slid 15,000 to 234,000, which is near the lowest level in 40 years. Separately, Housing starts, vaulted +11.3% in December easily beating estimates. The Philadelphia Federal Reserve business conditions index rose to 23.6, beating the Street’s 15.8 estimate.
Stocks opened higher on Friday Stocks rallied on Friday as Donald Trump made history and became the 45th President of the United States. Investors were focused on earnings as the latest round of stocks gapped up or down after reporting earnings. Skyworks Solutions (SWKS) gapped up after reporting earnings. This helped a slew of other Apple suppliers rally and bodes well for Apple’s earnings. Procter & Gamble (PG) also gapped up after reporting earnings. On the downside, General Electric (GE) gapped down after reporting earnings.
Market Outlook: Strong Action Continues
The market remains strong as the Dow continues flirting with the 20,000 level. 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 only raised rates once in 2016, by a quarter point to 0.50%, which, historically, is still very low. As always, keep your losses small and never argue with the tape.
