Stock Market Averages back to Major Inflection Points

Major Market Averages put in a mixed performance Monday, after just posting an impressive week of gains, topping off a 3 week winning streak as equity markets continue to repair and rebound off the February 11 lows.   

Again, a rally in the Oil Patch was the main catalyst inspiring stocks to shake off morning losses as Brent Crude eclipsed the $40 barrier and WTI is moving in on $38.  Anything even tangentially  related to raw materials and minerals enjoyed the coattails of a stunning +18% move in Iron Ore.  That’s right, this is not a typo, Iron Ore was the talk of the day in the world of raw commodities as comments out of China emphasized their growth objectives for the rest of the decade.

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The commodity inspired rally did little good for the momentum and growth stories from last year as NASDAQ showed a fractional decline with all FANG and near FANG stocks in the red.

After a nice three weeks that began with an escape from the abyss and transitioned into frantic short covering and savvy value driven discount shopping, stocks are now at a tricky level.  Market averages are staring at psychological resistance from Big Round Numbers, and technical levels marked by downtrends that started last summer and fall.     

In typical Wall Street fashion this could quickly become a case of “what have you done for me lately?” as stocks  are pressed against major inflection points after rallying +9% to +12% in less than 4 weeks.

How we got here:

The DJIA at 17,073 is +9.0% from its February 11 close and only in the red by -2.0% for 2016. The brisk move through DJIA 17,000 should provide a decent test for the conviction of the bulls as the week wears on.

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The S&P 500 at 2001.76 is +9.4% higher that the February 11 close and is now down only -2.0% YTD.  The S&P 500 rally has been aided by a strong rebound in oil and energy names, with some oil stocks 20% higher in the last 3 weeks. Banks have also enjoyed an oversold bounce as the yield curve has steepened in the last 10 days as talk of the FOMC joining the ECB and BOJ in the NIRP fiasco has significantly abated.

The S&P 500 is lock-step with the DJIA, staring at a big round number resistance of 2000.

NASDAQ at 4717.02 has rallied +10.3% from its February 11 low.  Just to highlight how steep the decline in the NASDAQ was the first 6 weeks of the year, the NASDAQ remains -6.0% YTD. Clearly there’s been some reallocation among equity investors away from some hyper valuation social media and internet commerce names into Electric Utility and Telecom names that provide a yield better than government and high grade corporate bonds.

The flight from hyper valuations in 2016 has no more glaring example than the Biotech space.  The IBB at 269.76 has rebounded +10.5% from the February 11 low, but is still down –20% YTD and is -32% from its all time high of 398 less than 8 months ago.

The IBB did show some signs of life Monday with a 2.5% gain.  It’s clearly lagged other beaten up sectors in moving off the Feb 11 lows and could rally to the 300 level without breaking its 8 month down trend.

The Russell 2000 at 1094.15  has had the largest move off the February lows, a whopping +16% and boy was it due for a rally.  After declining 28% from its all time high last June the Russell had gained posted gains 13 of the last 16 trading days and is now threatening the 1100 level. The Russell is still -3.6% YTD.


Stock Market Averages back to Major Inflection Points

The Early Line:

The ECB is on the proverbial hot seat to “deliver the goods” later this week, in  highly anticipated meeting.   The stakes were already very high for Super Mario and the Eurozone Finance Ministers, and the ante was likely raised this morning as Germany just reported their best report on Industrial Production in 6 years.

The FOMC meets next week with a near zero probability of an interest rate hike, although it’s likely they will talk optimistically about progress toward hitting their 2% inflation goal.

China is back in the news for the first time in over a month with startling trade report showing a decline in exports of -25%.   The Chinese are very proficient at producing economic reports with purpose,  maybe they’re looking to sandbag Mr. Trump’s recent rhetoric on unfair trade.

US Equity Markets are looking at early retreat of 0.75% to 1% following similar deficits in the Eurozone halfway through their trading day.  After the rally we’ve had the last 4 weeks, it’s probably time for a breather.

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