Chalking up another week of gains, US equity markets are putting the disaster that was January in the rear view mirror and moving on. The week ending February 26 was the second consecutive week of gains for the three major indices, though this one was not as potent as the first, signaling that while the rally in stocks may continue for some time, its momentum almost certainly is on the wane.
Over the past two weeks, the indices have clawed back roughly half of the losses suffered in January and the first week of February, a significant advance. Chart-watchers will be looking at key levels on the Dow and, especially, the S&P, seeking exit points before the eventual next downturn.
For the Dow, the next critical level is in the range between 17,200 and 17,350, about a two percent gain from where the market closed on Friday. The S&P is eyeing the 1985 to 2015 level, where significant resistance resides, again, roughly two percent from the close on the 26th.
The NASDAQ, already bumping up against its 50-day moving average, may have already lost momentum, though a move through the 4,620 mark could convince bulls that there's more upside on the horizon. The NASDAQ was the big winner, percentage-wise, on the week, but it remains at the heart of skepticism, loaded with risky energy and tech stocks, which comprise a hefty share of its index.
If the NASDAQ rolls over, this mini-rally could end quickly. A resumption of already well-established bear market conditions could extend into the Spring. One way or another, it's difficult seeing stocks surpassing the points from which they opened the new year. There's still much more risk to the downside than there are opportunities for a continuation of any rally.
While the past two weeks may have been "buy the dip" conditions in an oversold market, the converse, "selling the rip" should become apparent by the end of next week or, if the market and its participants grow increasingly patient and/or greedy, after the FOMC meeting on March 15-16.
A move to the downside prior to the meeting would signal a growing unease concerning Fed policies, which, to this point, have been less-than-reassuring to bullish plungers. While there's not much conviction among Fed-watcvhers that another rate increase is forthcoming, the risk remains. Another 25 basis point hike in the Federal Funds rate would send stocks to a semi-permananet shower. That's why the Fed won't move at this meeting, and the market pretty much knows it, so stocks are free to rally and investors are also free to take short-term profits.
With options expiration - a triple witching event - coming quick on the heels of the FOMC meeting, things could get very interesting on the 16th and 17th, as Fed policy is unveiled and the bulls have another chance to slaughter the shorts.
Look for stocks to gyrate at current levels, without much in the way of conviction, this week and into the next. Of course, the BLS non-farm payroll report for February will be closely followed, even though it has cemented its status as the worst barometer of both labor conditions and the general economy. The massaged numbers from the BLS are so statistically insignificant that they may well become more of an asterisk than an important inflection point as time progresses and the bear market resurfaces.
For now, however, the bulls have found a sweet spot. The smart money will be getting out shortly, the smarter money will squeeze out even more gains, and, as usual, the unsuspecting buy-and-hold muppets will be mercilessly stabbed, slashed and burned at the top of the short-term rally. The last two weeks of March and the advent of Spring should convince even the most optimistic that stocks have nowhere to go but down.
For the Week:
S&P 500: +30.27 (1.58)
Dow: +247.98 (1.51)
NASDAQ: +86.04 (1.91)
S&P 500: 1,948.05, -3.65 (0.19%)
Dow: 16,639.97, -57.32 (0.34%)
NASDAQ: 4,590.47, +8.27 (0.18%)
Crude Oil 32.84 -0.70% Gold 1,223.00 -1.28% EUR/USD 1.0932 0.00% 10-Yr Bond 1.7620 +3.83% Corn 358.75 -0.49% Copper 2.12 +2.29% Silver 14.71 -3.22% Natural Gas 1.79 +0.11% Russell 2000 1,037.18 +0.54% VIX 19.81 +3.66% BATS 1000 20,677.17 0.00% GBP/USD 1.3872 +0.03% USD/JPY 113.9850 0.00%