Stocks fell hard last week causing the major indices to break below near term support on Friday. The selling began after the last European Central Bank (ECB) meeting on Thursday, December 3. Once again, the action on Wall Street clearly shows us that the #Easymoney from global central banks remains the primary focus of this aging bull market. As a quick reminder, stocks fell after the ECB meeting because the central bank was viewed as not being "easy" enough. The ECB took rates further into negative territory and extended their QE program, but they did not increase it. The fact that they did not increase disappointed the Street and was viewed as them backing off and not being "easy" enough. Looking forward, the Fed is going to meet on Wednesday (12/16/15) and is largely expected to raise rates by a quarter point. Once again, stocks are falling hard ahead of the Fed meeting. We saw this in August and it is happening again in December. It's the market's way of asking the Fed not to raise rates. Barring more interference from global central banks, U.S. stocks appear to be building a large topping pattern. Last week, we wrote that support for the major indices resides near the the 50 DMA line and that level was broken on Friday. Finally, we would not be surprised to see the Fed kick the can further down the road and not raise rates on Wednesday. Either way, we know that defense is king at this juncture and this bull market is getting weaker, not stronger.
Monday-Wednesday's Action: Stocks Under Pressure
Stocks fell hard on Monday as oil prices continued to fall. Before the open, Keurig Green Mountain ($GMCR) agreed to be acquired by an investor group led by JAB Holding Company for $92/share, which translates to roughly $13.90 billion. That was a huge (80%) premium because GMCR closed at 51.7 on Friday. In other news, shares of Chipotle Mexican Grill ($CMG) got whacked after the company lowered their Q4 estimates due to the ongoing E. coli outbreak. Economic data was relatively light. The Consumer Credit report was released and showed a $16.00 billion increase in October which missed estimates for $18.6 billion. The increase was largely due to a $15.80 billion increase in nonrevolving credit.
On Tuesday, stocks fell again as oil prices plunged to the lowest level since the 2008-2009 financial crisis. Oil prices tanked after more disappointing economic data was released from China. China said November's trade surplus narrowed to $54.10 billion from $61.64 billion (expected surplus of $63.30 billion) as exports slid -6.8% year-over-year (consensus -5.0%; previous -6.9%) and imports fell by -8.7% (expected -12.6%; last -18.8%). The weaker than expected numbers from China illustrate the global economy remains in trouble.
On Wednesday. stocks opened higher but turned lower after oil prices rolled over, again. Oil prices fell after the U.S. Energy Information Administration said weekly crude inventories fell. Other areas of the market also got hit including shares of Apple Inc. ($AAPL) which fell 2% after the company said they are scrapping their live streaming TV business. In M&A news, the Wall Street Journal reported that Dow Chemical ($DOW) and DuPont ($DD) are in advanced talks to merge in a deal worth approximately $120 billion. After the merger, the companies are expected to split their businesses focusing on agricultural, materials services, and specialty products operations.U.S. wholesale inventories slid by 0.1% in October which missed estimates for a small gain of 0.1%. The data suggests inventories will once again be a drag on Q4 GDP.
Thursday & Friday’s Action: Heavy Selling Continues
Stocks edged higher on Thursday even as oil prices fell to the lowest level since 2009. The Dow Jones Industrial Average and the benchmark S&P 500 tried to bounce near their 50 day moving average lines (an important area market participants watch). On the economic front, initial jobless claims rose to 282,000, beating estimates for 270,000. Import and Export prices fell -0.6%, missing estimates for -0.3%. That clearly shows that deflation continues to be more of a threat than inflation. The Bloomberg Consumer Comfort Index came in at 40.1, slightly higher than the Street's estimate for 39.6. The index is a weekly, random-sample survey tracking Americans' views on the condition of the U.S. economy, their personal finances and the buying climate.
Market Outlook: Aging Bull Market
This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2016. The last two major bull markets ended shortly after their 5th anniversary; 1994-2000 & 2002-Oct 2007. The fact that easy money is here to stay (for now) is all that matters. Everything else is noise. Eventually that will change, but for now the bulls remain in control. As always, keep your losses small and never argue with the tape. If you want exact entry and exit points in leading stocks, or access more of Adam's commentary/thoughts on the market - Join FindLeadingStocks.com.
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