In our intra-week note, we wrote, "Allow us to be clear, the major indices are in the process of topping out, and barring some large unforeseen reversal to the upside - we are headed into a long overdue bear market for stocks (and possibly a global recession). A few of the major indices are now in correction territory (defined by a decline of 10% from a recent high) while several important sectors (transports, commodities, biotechs, just to name a few) are already in bear market territory. Thankfully, our defensive/cautious stance has been right on the money since last summer (for our newer members, we first turned cautious before the big crash in Aug 2015 and have been very selective since)."
This was the weakest first week of a new year in Wall Street's history. The popular indices were crushed this week with the small cap Russell 2000 breaking below last year's low and it is now down 19% from its record high. Remember, the media defines a bear market as a decline of 20% or more from a recent high. Oil prices tumbled a whopping 10% last week and Chinese stocks continued to plunge which triggered fresh concerns about a slowing global economy. Meanwhile, several important sectors are already down over 20% from their highs such as the Transports (IYT), Biotechs (IBB), and Retail (XRT), just to name a few.
Monday-Wednesday's Action: Sellers Shows Up With A Vengeance
Stocks tanked on Monday after a new round of selling began in China. Overnight, Chinese stocks plunged a whopping 7% which triggered a worldwide sell-off. Stocks in China were halted after new circuit breakers were introduced. Monday was the first trading day for the month, quarter and year and the worst opening day for Wall Street since 1932! Stocks were relatively quiet on Tuesday as the market paused to digest Monday’s very sharp sell-off. Reuters reported that the People's Bank of China (PBOC) injected nearly $20 billion into money markets to help calm the markets. That was the largest cash injection since September 2015. This led people to be concerned that China's central bank was interfering with markets again and using state banks to prop up the yuan at the same time.
In the US, motor vehicle sales pointed toward a record year. Stocks tanked again on Wednesday as the selling continued to hit markets across the globe. Oil prices plunged over 5.0% and gasoline futures plunged over 8.0%, which illustrating how weak global demand is right now. On the economic front, the ADP said private employers in the U.S. added 257k new jobs in December, beating estimates for 190k. Factory orders slid by 0.2% in November matching Briefing.com's consensus estimate. Finally, the ISM Service Index fell to 55.3 in December missing estimates for 56.4.
Thursday-Friday's Action: Jobs Report Beats Estimates; Stocks Fall
Stocks opened sharply lower on Thursday after China's stock market was closed 29 minutes after the when it plunged another 7.0%, triggering circuit breakers...for the second time this week. China removed the circuit breakers which was just put in place on Monday. Around midday, Reuters reported that China may devalue its currency by another 10-15% (a huge amount) to help stimulate their lackluster economy. Before Friday's open, the government said US employers added 292k new jobs, beating estimates for 200k. The stronger than expected jobs report is normal for this point of the cycle (late stage).
Market Outlook: Bull Market Continues To Top Out
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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