It was another bullish week on Wall Street as the major indices broke above resistance of their eight-week post-August trading range. The bulls regained control of this market three weeks ago when stocks bounced after formidable support was tested in late September and early October. The big day occurred on Fri 10/2 after September's weaker than expected jobs report was announced. For months, we have argued that:
Wall Street is ready for a rate hike but Main Street clearly is not. So the easy money trade is alive and well (for now)."
Fundamentally, that is the primary driver of this entire aging bull market and trumps the weak action we continue to see from Main Street (both on the earnings and economic front). Technically, the major indices are forming a bullish double bottom pattern "W" and look very similar to the Nasdaq in 1998 (before it soared into the March 2000 high). This has the potential to set the stage for a very strong advance, especially if the market continues acting well to all the easy money sloshing around the world from global central banks. We will turn a lot more bullish once the S&P 500 trades (and stays) above 2040. In the short term, the market is extended to the upside and due for a little pullback here to digest the recent and strong rally off support.
Monday-Wednesday's Action: Pullback, What Pullback?
Stocks were relatively quiet on Monday as the bond market was closed for Columbus Day. The big news came from tech-land, when privately-held Dell Inc. announced plans to acquire EMC ($EMC) for $67 billion. The deal is the largest technology acquisition in history. CEO Michael Dell, who will run the combined company, said the move will allow Dell to leverage EMC's strength in the cloud and move into the enterprise space which is much more lucrative than the weakening personal computer market. Over night, stocks in Asia and Europe fell hard after China said exports plunged nearly 20% which puts pressure on the already weak global economy. Chinese imports were only off three percent, which suggests Beijing's efforts to stimulate their economy may be working. A stronger Chinese consumer invariably helps US multi-nationals that sell goods and services in China.
On Tuesday, stocks edged higher in the morning, but quickly reversed and closed lower after the S&P 500 encountered stubborn resistance near 2020. The 2020 level has been formidable resistance since the big sell-off in late August. Stocks fell on Wednesday after shares of Wal-Mart ($WMT) plunged nearly 10%. The company said earnings will fall 6-12% during fiscal 2017,which was much lower than the Street's estimate for a gain of four percent. The company announced a $20B buy back program on top of its $15B program that started in 2013. Semiconductor stocks surged on Wednesday after Intel ($INTC) announced numbers. Semiconductor stocks are a very important area for the market, and the fact that they rallied sharply bodes well for the bulls. Retail sales rose by 0.1% in September, missing estimates for a 0.2% gain. Retail sales for August were revised lower. Producer prices fell by 0.5%, missing estimates for a decline of 0.3%.
Thursday-Friday’s Action: Stocks Jump Above Resistance
Stocks rallied sharply on Thursday helping the market turn positive for the week. The financials led the way higher which added to the strong action we saw on Wednesday from the semiconductor group. Stocks rallied on Friday helping the market finish on a strong note.
Market Outlook: Bulls Continue To Fight
Every bull market in history has a definitive beginning and an end. It is important to note that with each day that passes, we are getting closer to the end and further away from the beginning. This bull market is aging by any normal definition, and celebrated its sixth anniversary in March 2015. The last two major bull markets ended shortly after their fifth anniversary; 1994-2000 & 2002-Oct 2007. As always, keep your losses small and never argue with the tape.
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