Week In Review- Stocks Soar To Fresh Highs; Russian Tensions Linger



SPX- 03.07.14 broke out of a head and shoulders continuation pattern

FRIDAY, March 07, 2014

The benchmark S&P 500 (SPX) surged to another record high last week which illustrates how strong the bulls are right now. In the past 5 weeks, from the Feb 5th low of 1737, the S&P 500 jumped a very impressive 8.4%. Remember, in a normal (non QE) world, a 10% move for the entire year would be considered healthy. So +8.4% in 5 weeks is very powerful and speaks to how strong the bulls are right now.  Remember markets do not go straight up so be careful chasing stocks that have already had big moves up here.  A better approach that has worked very well for us over the years is to buy weakness in uptrends, not just strength. In the short term, the market is clearly getting extended and a light volume pullback into the 50 dma line would do wonders to shake out the late-longs. Meanwhile, the intermediate and long term outlook remains very strong.


Over the first weekend in March, Russia invaded Ukraine and stocks gapped down on Monday. Fear was elevated, rumors were flying that Putin would become the next Hitler, this would become Obama’s Bay of Pigs, etc..etc. As a testament to how strong the bulls are right now, the sell-off lasted less than one day. Cooler heads prevailed and Putin pulled back by the end of the day. John Kerry landed in Ukraine on Tuesday and fear subsided very quickly. After the one day sell-off, the bulls returned and sent stocks soaring on Tuesday, helping it become the strongest day of the year. A slew of high beta stocks soared as well after a very brief and healthy pullback. The broad gains sent several key indices soaring to fresh highs and/or 2014 highs which is very encouraging.

Stocks were quiet on Wednesday as investors digested the recent and robust rally. The latest economic data was mixed to slightly lower. The Fed’s Beige Book confirmed that the harsh weather caused a slowdown in economic activity across much of the country. Elsewhere, the ADP said US employers added 139k new jobs in February, missing estimates for a gain of 160k. The ISM service index also missed estimates and the miss was written off due to – you guess it- weather. A slew of financial stocks soared as capital began to flow back into this area.

THURS & FRI’S ACTION: Bulls Are In Control

Stocks opened higher on Thursday after the ECB held rates steady and fear around the situation in Ukraine continued to ease. Crimea’s parliament, the Russian-heavy region in Ukraine, voted to join Russia and scheduled a referendum for March 16 on the move. Before Friday’s open, the Labor Department said US employers added 175k new jobs last month. This beat estimates and January’s reading was revised up to 129k. Separately, the unemployment rate unexpectedly rose to 6.7 percent.


The market is following our script perfectly. In late Jan/early Feb we wrote saying that this appears to be another normal (and healthy) pullback within a broader uptrend. That is exactly what occurred.  As always, keep your losses small and never argue with the tape.


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