Stocks are weak as the major indices continue forming a large topping pattern. All year, the S&P 500 has been trading in a large trading range as more and more areas of the market continue to break down and fewer and fewer areas of the market remain in good shape. The fact that nearly every major commodity in the world is in a steep bear market clearly shows us that economic demand is waning across the globe.
Energy prices are imploding, and transports, which should rally when energy prices fall, are now flirting with August's low! That is another clear sign that economic demand is slowing. Retail stocks are getting mauled, which bodes poorly for the very important Q4 holiday shopping season and the broader economy. In light of all this, the Fed decided to raise rates last week and told us that they are confident about the economy. The Fed also told us that inflation will reach their two percent target in the near future. This makes no sense, because the world is deflating, not inflating and, unless something changes, eventually stocks will "deflate" as well. Keep in mind that this bull market is nearly seven years old and is aging by any normal measure. Barring more interference (#Easymoney) from global central banks - US stocks appear to be building a large topping pattern and look weak. Defense is king at this juncture as this aging bull market is getting weaker, not stronger.
Monday-Wednesday's Action: Stocks Rally Ahead of Fed Hike
Stocks rallied on Monday as the market tried to bounce from the prior week's steep sell off. Crude oil remained front and center as energy plunged to another multi-year low overnight before buyers showed up and helped crude rally by the close. The late morning bounce in crude oil helped energy stocks edge higher, after the prior week's 6.6% shellacking. In M&A news, Jarden ($JAH) jumped nearly 3% after agreeing to be acquired by Newell Rubbermaid ($NWL) for $60/share in cash and stock.
Stocks rallied on Tuesday as the Federal Reserve began their last two day meeting of the year. According to briefing, The Consumer Price Index was unchanged in November (consensus 0.0%) while core CPI increased 0.2% in November (consensus +0.2%). On a year-over-year basis, total CPI is up 0.5%, representing the highest level since December 2014 On a year-over-year basis, core CPI is up 2.0%, representing the highest level since May 2014. Separately, The Empire Manufacturing Survey for December improved to -4.7 from -10.7 reported in November while the consensus expected a reading of -5.9. Finally, the NAHB Housing Market Index slid to 61 from 62 while the consensus expected an improvement to 63.
Stocks rallied nicely on Wednesday as the Federal Reserve raised rates for the first time since June 2006. The Fed raised rates by a quarter point and said future rate hikes will be "gradual." This was there way of saying the easy money is here to stay. On the economic front, Housing starts came in at a seasonally adjusted annual rate (SAAR) of 1.173 million in November beating estimates for 1.135 million. Multifamily starts jumped +16.4% while single-family starts spiked by +7.6%. Building permits also soared to a SAAR of 1.289 million. That was 11% above the revised October rate of 1.161 million (prior 1.150 million) and well ahead of the Briefing.com consensus estimate of 1.150 million. Industrial production missed estimates (-0.1%) and slid by 0.6% in November. The weekly MBA Mortgage Index fell 1.1% to follow last week's 1.2% increase.
Thursday & Friday’s Action: Heavy Selling Returns
The three day bounce ended abruptly after the sellers showed up on Thursday and sent the Dow Industrials down by 253 points. On the economic front, weekly initial claims slid by -11k to 271k which missed estimates for 276k. The Philadelphia Fed's Manufacturing Index fell into negative territory with a reading of -5.9 missing estimates of +2.0. The current account deficit for the third quarter totaled $124.10 billion which missed the average estimate for $114.20 billion. The Conference Board's Leading Economic Index (LEI) fell -0.4% in November on top of an unrevised -0.6% increase in October. The reading aslo missed estimates for +0.1%. Stocks fell hard on Friday as the selling continued apace. Overseas, the Bank of Japan (BOJ) said they will extend their QE program (print more money) and said they will buy 2.5B in ETFs but investors were not happy because they wanted the BOJ to increase QE. China's Beige Book missed estimates and that bodes poorly for the global economy.
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, consider joining FindLeadingStocks.com.
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