Week In Review: S&P 500 Forming Bullish Double Bottom Pattern; Leaders Are Strong

1987 VS 2013: A QUICK LOOK

It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness.

MONDAY-WEDNESDAY’S ACTION: STOCKS BOUNCE FROM OVERSOLD LEVELS

On Monday, stock futures jumped over 100pts as the stock market was closed in observance of Labor Day. The big move came after Obama turned to Congress for approval before striking Syria. The “delay” was seen as a net positive for stocks. On Tuesday, stocks edged higher but closed well off their intra-day high as the Syria drama continued to unfold. Comments from House Speaker John Boehner and Majority Leader Eric Cantor served as a reminder that the option for a military strike in Syria remains on the table. Both Speaker Boehner and Mr. Cantor said they support the president’s “call to action” with U.S. Congress scheduled to debate the issue next week, when they return from vacation. Economic data was mostly positive after a slew of stronger-than-expected manufacturing data was announced across the globe. In the US, the ISM Manufacturing index jumped to 55.7 in August which was the fastest pace in over 2 years. Chinese manufacturing hit a four month high, also beating estimates. Separately, Euro-Zone factory activity beat estimates and rose at its fastest pace since May 2011. Elsewhere, the Commerce Department said construction spending in the US rose 0.6% to an annual rate of $901 billion which beat the Street’s estimate for a gain of 0.3%.

THURSDAY & FRIDAY’S ACTION: Stocks Bounce; 50 DMA Is Resistance

Stocks were quiet on Thursday as investors digested a slew of data. The Bank of Japan, European Central Bank (ECB) and the Bank of England (BOE), all held rates steady and reaffirmed their “easy-money” stance. Rates soared as markets are now looking forward and know an end is in sight for ultra easy money policies from global central banks. In the US, weekly jobless claims slid to a five-year low, falling 9k to a seasonally adjusted 323k and beat estimates for 330k. Meanwhile, ADP said private employers added 176k new jobs in August, just missing estimates for a gain of 180k. The ISM service index surged to the highest level since before the financial crisis. Before Friday’s open, the Labor Department said US employers added 169k new jobs last month, missing estimates for a gain of 175k. Meanwhile, the unemployment rate slid to 7.3%.  The G20 failed to produce anything more than just the usual rhetoric, with each side speaking to their constituents.

MARKET OUTLOOK: 50 DMA Line Is Resistance

The market still has some issues as the DJIA & SPX are now “living” below their respective 50 DMA lines. Defensive is paramount until the major averages trade, close, and stay above their respective 50 dma lines. Please note that our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.