The Dow Jones Industrial Average (^DJI:DJI) gained 23.5 points or +0.5% on Friday for its fourth higher close in a row and its 38th record high this year. The S&P 500 (^GSPC:SNP) gained 6.89 points or 0.3% and has gained 5.8% over the last seven sessions— its longest winning streak in more than a year and its 52nd record high. The NASDAQ composite (NQH15:CME) closed 33.39 points higher or up 0 .7% and into positive territory for the month.
Over a month ago I said that the S&P would detach from the weakness in the oil markets, and it has in a big way. I know that it’s hard to separate what seems so logical, but what I believe is that the December historical stats are so well-known that they once again proved themselves. The rally that started Dec. 17 when the Federal Reserve indicated that they would remain patient was a turning point for the stock market, and despite the weakness in the energy markets, mutual funds and big investment firms started to mark up their winners. That was also the day crude prices found a bottom at $54 a barrel and held.
With the Dow up over 175% and the S&P up over 200% from the low of March 2009, the overall stock market patterns remain the same: small selloffs followed by record-breaking rallies. The volumes remain historically low. On Friday only 3.3 billion shares traded on US stock markets. If we’ve learned anything in 2014, it’s that when the crowd thinks markets are going lower or starts calling for a crash— it’s time to start buying stocks. That is exactly what we saw this month.
While some traders thought lower crude prices would permanently weaken stocks, other investors saw the larger benefit to the US economy. The US economy posted a surprising 5% growth rate and created 312,000 private sector jobs in November, the 57th straight month of job creation. With economic numbers like that and better-than-expected earnings in the holiday spending season, we thought the markets would surge higher and they did.
9 of 11 Asian markets closed higher and in Europe 8 of 12 markets are trading lower. This week’s shortened New Year’s week economic calendar includes 14 separate economic releases and 9 T-bill and T-bond auctions or announcements. Today’s economic calendar includes the Dallas Fed manufacturing survey, Fed balance sheet and money supply.
S&P up 5.7% last 7 sessions
3 trading days left in 2014
Our view: Monday’s ESH15 volume was 850,000, Tuesday’s was 775k and Wednesday’s abbreviated holiday session saw only 235k ESH15s traded. Friday’s total was only 307k and guess what? It’s not going to get any better this week or the week after. Clearly MrTopStep’s trading rule, “thin to win,” is working as the markets trickle upward with little resistance. Including today, there are 2-1/2 days left in 2014. While we think the markets continue higher, we also think that they will be connected to very low volumes. This leaves the possibility of some type of selling on the last day of the year as the mutual funds run out of money and stock to buy. Our call if you’re trading is to continue to buy weakness.