Stocks were under pressure for most of August as a slew of external “fears” plagued Wall Street. Here are some of the “fears” that hurt stocks: Fed Taper, Lackluster earnings growth, Potential War Brewing in the Middle East, & higher energy prices, to name a few. We are watching very closely further deterioration because so far the first 8 months of 2013 are eerily similar to 1987.
1987 VS 2013: A QUICK LOOK
It is important to note that Jan-Aug 2013 looks eerily similar to Jan-Aug of 1987. We are not there yet but something we are watching closely. Here are a few facts for your review: In 1987, the S&P 500 soared over 30% from Jan-Aug. So far, in 2013, it vaulted 20% during that period. In 1987, the S&P 500 topped out at the end of August then broke below its 50 DMA line in September. Then support was broken on Oct 14, 1987 when it took out its recent lows – just above 308 (& no that is not a typo!). Then it broke and closed below its 200 DMA line on October 15th. The following Monday was “Black Monday” where the S&P 500 lost an incredible -15% in one day! We are not sure how the rest of 2013 plays out but we will be on the look out for further weakness…
2013:
1987:
In mergers news, Amgen (AMGN) surged over 10% after they made an offer to acquire Onyx Pharmaceuticals (ONXX) for over $10B.
Economic data was lousy, durable goods plunged -7.3% easily missing the Street’s estimate for a -0.4% decline. separately, the Dallas Fed manufacturing survey rose to 5.0 which beat the Street’s forecast for 4.5.
The S&P Case/Shiller Index showed that home prices rose on average 0.9% in June, matching the Street’s estimate. The report showed that home prices jumped 12.1% vs the same period last year. Elsewhere, consumer confidence rose to 81.5, beating estimates for 78. The Richmond Fed Manufacturing index, which measures manufacturing activity in region, jumped to 14, easily beating estimates for an unchanged reading.
MARKET OUTLOOK: BEARS ARE GETTING STRONGER
The market still has some issues as the main indexes are now “living” below their respective 50 DMA lines. Defensive is paramount until the major averages trade, close, and stay above their respective moving averages. Our goal is to remain in sync with the broader trend of the market (up or down) and not get caught up with the minutiae of changing labels on the market status very often. As always, keep your losses small and never argue with the tape.
My view is that Syria is not a matter of “if” but rather “when”. Defense and oil stocks will benefit as a result. Raytheon (RTN) and Lockheed Martin (LMT) both looking healthy here, and as yet have not reacted to Syria in their prices. USO a proxy for oil prices is the same. Exxon (XOM) not healthy from a technical point of view (yet) but sitting comfortably on long term support around $86.
Trade wisely,
Adam.
