The market remains very strong. The S&P 500 has rallied for six straight weeks and remains very extended to the upside. The major indices opened higher but closed in the lower half of their weekly ranges which is normally a sign of short term fatigue. The market is way overdue to pullback and the key going forward is to analyze the health of that pullback. The bullish fundamental case for stocks remains clear - the easy money trade is alive and well. That means, either A. the economy will organically improve or B. The Fed will keep rates low (or print more money) until the economy improves. Technically, the bulls defended Aug's low at the end of Sep/early Oct and helped the benchmark S&P 500 form a bullish double bottom pattern "W." This powerful pattern looks very similar to the Nasdaq in 1998 (before it soared into the March 2000 high). On Friday, the Labor Department said U.S. employers added 271k new jobs in Oct, easily beating estimates for 190k. That was the first strong "data point" we have seen in ages. We are also reminded of 2011 where the S&P 500 enjoyed huge gains in October but closed flat for the year. So far, 2015 looks very similar. We'll see how this plays out.
Monday-Wednesday's Action: Stocks Edge Higher
Small cap stocks led the major indices higher on Monday on the first trading day of November. China's official purchasing managers index was unchanged at 49.8 in October. In The United Kingdom, manufacturing growth unexpectedly rose to 55.5 in October which was the highest level since June 2014, as new orders surged. A Purchasing Managers Index for the euro-area also rose, coming in at 52.3, ahead of the median expectation for 52.0. In the U.S., the PMI manufacturing index rose to 54.1, matching estimates for 54.1. The ISM manufacturing index came in at 50.1, barely beating estimates for 50.0.
Stocks rallied nicely on Tuesday, led higher but energy stocks. Economic data was mixed. Factory Orders fell -1% in September, missing estimates for a decline of -0.9%. Vehicle sales in the U.S., rose to 14.5M, beating estimates for 14.1M. A slew of earnings continued to be released with some stocks gapping up and some gapping down. This is known as earnings roulette. Stocks slid on Wednesday as investors digested the latest round of economic and earnings data and listened to Dr. Yellen testify on Capitol Hill. Yellen said if the economic data improves the Fed will be open to raising rates. That doesn't mean the Fed will raise rates, just that they are open to raising rates when the "data" improves. (Shocking, we know). ADP said private employers added 182k new jobs in October, missing estimates for 185k. The ISM service index came in at 59.1, beating the Street's forecast for 56.7. The PMI service index matched estimates at 54.8.
Thursday-Friday’s Action: Jobs Report Tops Estimates
Stocks fell on Thursday ahead of Friday's jobs report. Biotechs under performed, led lower by Valeant Pharmaceuticals (VRX) . VRX plunged another -14.4% as concern spread regarding the company's accounting methods. Gilead Sciences (GILD) lost -1.1% and Celgene (CELG) slid over -5% after reporting numbers. Shares of Facebook (FB) surged to a fresh record high after the company said they have 1.5 billion active daily users! Not monthly, but daily. That is a huge amount of people using FB and their related services. On Friday, the Labor Department said U.S. employers added 271k new jobs in Oct, easily beating estimates for 190k. That was the first strong "data point" we have seen in ages. We'll see if this is an anomaly or the beginning of a new bullish trend.
Market Outlook: Bulls Are Strong
This bull market is aging by any normal definition and will celebrate its 7th anniversary in March 2015. 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.