General Market Outlook: The market is still in a cautious uptrend. This last week the S&P 500 rose 1.6%, the Nasdaq rose 2.7% and the Dow 1.2%. Positive economic data for the week was well accepted, but the fireworks really did not go off, as gauged by the action of leading stocks. Despite the move by the general indices the leaders were somewhat muted.
Market Condition: → Cautious uptrend
The technical view: The general indices were positive for the week, however there still is a lack of huge institutional buying of top stocks sending them higher. Currently it looks more like seller exhaustion, vs. buyers strongly accumulating shares. However, there was a fair deal of positive action looking at all the indices. The Nasdaq stayed above the 2600 level and also reclaimed its 200 day moving average on Thursday as the volume picked up from the day before. The S&P 500 stayed above the 200 day average as well and looks like it will test its October 27th high of 1292. The Dow is leading for now and did overcome the October 27th high of 1284 and stayed above this level all week. Perhaps most interesting is that on Wednesday, Thursday and Friday the Nasdaq traded lower at the start of the day, however managed to closed higher all 3 sessions. This was a welcome event and something we have not seen for a while. Critical right now is to see if the Nasdaq can hold the 200 day moving average around 2660, and look to see if we get more new highs in leading stocks.
Fundamental view: This last week we saw good economic reports in the US. The ISM Manufacturing has show now that the manufacturing sector has grown now for 29 straight months. The ISM services index has shown growth for 25 straight months. Private payrolls increased 212,000 and the unemployment rate came down to 8.5% the lowest since March 2009. The average workweek increased to 34.4 from 34.3.
We still have great corporate profits and a very accommodative fed. Starting this week we have earnings season kicking off. So we will see how the earnings come in and more importantly how the market reacts to these numbers.
I believe one important sector worth noting is the financial sector. It is worth noting what is taking place in regional banking shares, they are starting to move. This may also serve as an economic indicator. Looking at IBDs industry group ranking of 197 industry groups, (the lower the number the stronger the group):
- Banks-Midwest are now at the number 10 spot up from 141 (7 months ago).
- Banks –Southeast are now at the number 19 spot up from 124 (7 months ago).
- Banks- Northeast are now at the number 20 spot up from 69 (7 months ago).
- Banks- West/Southwest are now at number 24 spot up from 93 (7 months ago).
- The large Banks (GS, MS, JPM etc, are still lagging the market near the bottom ranked at 176 by IBD out of 197 Industry Groups (the lower the number the worse groups performance).
Notable stocks we are looking at in the regional bank space are Signature Bank (SBNY) in Bank-Northeast Industry group, and Texas Capital Bancshares (TCBI) in the Banks-West/Southwest industry group. We will try to cover these in future reports.
Since our follow-through day, of December 20th at this point we are willing to commit small positions to certain stocks although we still do view the risk being high due recent market action. Earnings season starts this week so strap in! Please contact us at 1-866-903-1822 for help on this matter.
We do not own shares in SBNY or TCBI but we may initiate positions in these stocks at any time if we view them still as playable and if the market continues to improve.