200 DMA Line Is Under Attack!

Monday, August 1, 2011
Stock Market Commentary:

Stocks were volatile on Monday after the latest manufacturing data plunged to the lowest level since July 2009 and E.U. contagion woes resurfaced in Italy! It was disconcerting to see all the major averages slice and close below their respective 50 DMA lines in the final week of July but so far the 200 DMA line appears to be holding. On Monday, the S&P 500 sliced below its 200 DMA line but the bulls quickly showed up and quelled the bearish pressure and defended it by the close. The fact that all the major averages are below their respective 50 DMA lines suggests the bears are getting stronger and caution is paramount until the technical damage is repaired. Looking forward, the next level of support are the 2011 lows/the 200 DMA lines and the next level of resistance are the 2011 highs.

Debt Deal Reached But U.S. Economy Sputters:

Late Sunday night, President Obama announced a bipartisan deal that resolved the long debt saga. Immediately, futures soared nearly 200 points which set a positive tone for Monday’s session. However, the gains were short lived. On Monday, stocks opened higher but fell hard around 10am EST after July’s ISM manufacturing index slid to 50.9 which was the lowest reading since July 2009. July’s reading was below the Street’s average estimate and below June’s reading of 55.3. On the plus side, the reading came in just above the boom/bust level of 50. The July ISM number is the first piece of economic data for the third quarter which bodes poorly for Q3 GDP especially since Q1 and Q2 GDP were such a disappointment. Q2 GDP only rose +1.3% which was below the +1.8% average estimate and Q1 GDP was revised down from +1.9% to +0.4%. Since then, economists have lowered their second half expectations between 2-2.5%. This Friday, the government will release July’s non farm payrolls report which will give investors a more definitive view of the ailing jobs market.

Market Outlook- Market In A Correction

The latest action in the major averages suggests the market is back in a correction as all the major averages are flirting with their respective 200 DMA lines.  Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests caution is paramount at this stage until all the major averages rally back towards their respective 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.
 

Stock Market Research?

Global Macro Research?

Learn How To Follow Trends?

See How We Can Help You!

Similar Posts

  • Week In Review: Stocks Fall As Greece Drama Continues

    Stocks End Week Lower As Greek Drama Continues Stocks fell hard on Monday after it became clear that Greece would default on its debt and literally shut down their entire banking system for the week. Greece missed its latest payment to the IMF and became the first developed nation to default on their debt in modern history….

  • Support Now Becomes Resistance

    Market Outlook- Market In A Correction:
    From our point of view, the market is back in a correction now that all the major averages closed below their respective 50 DMA lines and important upward trendlines. Since the beginning of May, we have urged our clients and readers to be extremely cautious as the major averages and a host of commodities began selling off.
    For those of you that are interested, the S&P 500 hit a new 2011 high on May 2, 2011. Two days later, on Wednesday, May 4, 2011, we turned cautious and said “The Rally Was Under Pressure” (read here). Then on Monday, 5.23.11, we changed our outlook to “Market In A Correction” (read here). On Monday June 6, 2011 we pointed out that the S&P 500 violated its 9-month upward trendline (read here) and reiterated our cautious stance. We have received a lot of “thank you” emails for being “spot on” and our cautious approach. We are humbled by your presence and very thankful for your continued support. Looking forward, the next level of resistance for the major averages is their respective 50 DMA lines then their 2011 highs. The next level of support is their longer term 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.
    Stock Market Research?
    Global Macro Research?
    Want To Follow Trends?
    Learn How We Can Help You!

  • Stocks Fall; Gold Hits Record High!

    The action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong. Looking forward, the window is open for disciplined investors to carefully buy high-ranked stocks, while many pundits are expecting that markets may consolidate following recent gains. It was very encouraging to see the major averages and several leading stocks break above stubborn resistance levels and continue marching higher. All the major averages had recently rallied above their respective 200-day moving average (DMA) lines, a clear sign that the overall market is in healthier shape. Now that the summer highs have been exceeded, the next important resistance levels for the major averages are their respective April highs.

  • Lousy Week For Stocks

    Friday, July 15, 2011
    Stock Market Commentary:
    Stocks ended lower for the week but managed to stay near their respective 50 DMA lines which is an encouraging sign. The benchmark S&P 500 index sliced and closed below its 50 DMA line on Thursday which is not ideal. Meanwhile, the Dow Jones Industrial Average and the tech heavy Nasdaq composite managed to stay above their respective 50 DMA lines. Once all the major averages violate their respective 50 DMA lines, the rally will end and the bears will have regained control of this market. Looking forward, the next level of resistance is their respective 2011 highs.
    Monday- Wednesday’s Action: Stocks Slide On Debt Woes
    Over the weekend, fresh debt concerns surfaced from the U.S. and Europe which put pressure on stocks and a slew of commodities. In Europe, an emergency session was held to discuss Italy’s mounting debt woes. Before Tuesday’s open, the euro was smacked as fresh debt woes surfaced throughout Europe and the debt/deficit situation in the U.S. remains unresolved. Euro zone finance ministers promised a more flexible approach to deal with Greece and other troubled nations. However, markets across the world did not believe their rhetoric. A newspaper report showed that six Spanish banks failed the EU stress tests which are slated to be released on Friday. Elsewhere, the U.S. trade deficit soared to a 3 year high in May thanks in part to lower exports. The Commerce Department said the deficit surged +15.1% to +50.2 billion in May which is the largest imbalance since October 2008.
    At 2pm EST, the minutes of the Federal Reserve’s June meeting were released and showed that Fed officials did not rule out QE3. Stocks sold off after a short-lived initial bounce on the news. Shortly after the Fed minutes were released, Moody’s rating agency downgraded Ireland’s debt rating to junk which sent stocks lower. Finally, Alcoa (AA) officially kicked off earnings season after Monday’s close when they released their Q2 results. Needless to say, it will be interesting to see how the major averages react to earnings over the next few weeks.
    Before Wednesday’s open, China said its gross domestic product (GDP) slowed to a rather strong +9.5% last quarter. This was slightly lower than Q1′s strong reading of +9.7% but slightly higher than the Street’s +9.4% expectation. It is important to note that Beijing has been rather vocal in their attempts to curb inflation and their red-hot economy. In the U.S., Ben Bernanke made it abundantly clear that the Fed is willing to step up and ease monetary policy (i.e. QE 3) again, “if needed.” This sent the dollar lower and a slew of dollar denominated assets (i.e. risk assets) higher. On a rather sad note, a series of bombs rocked the financial district of Mumbai, killing at least 21 people and injuring 141 in what most believe to a terrorist attack.
    Thursday & Friday’s Action: 50 DMA line Is Support!
    On Thursday, investors digested a slew of economic data, most of which topped estimates. The Labor Department said, weekly jobless claims fell -22,000 to 405,000 last week which is much closer than to the closely followed 400,000 mark. The latest read on inflation was tame which helped ease pressure on the Fed to raise rates in the near future. The producer price index (PPI) fell -0.4% which was below the -0.3% forecast.
    Retail sales rose +0.1% which topped the unchanged reading expected by Wall Street. Bernanke spent most of his day testifying on Capital Hill where he made it clear that he was not immediately ready to embark on QE 3. Stocks immediately sold off on the news. The pressure in D.C. is palpable regarding the ongoing debt/deficit talks. The President knows that the country is at a critical juncture and if this issue is not resolved swiftly the ramifications will be ominous, it will tarnish his legacy, and most likely cost him a second term in office. After Thursday’s close, Google (GOOG) surged over 10% after smashing Q2 estimates which bodes well for Q2 earnings season.
    Before Friday’s open, Citigroup (C) reported stronger than expected Q2 results which bodes well for the ailing financial sector. Economic data was mixed. The consumer price index (CPI) slid -0.2% which matched the Street’s estimate. Core CPI, which excludes food and energy, rose +0.25%. Elsewhere, the Empire State Manufacturing Index fell -3.76 last month which fell short of the Street’s estimates and consumer confidence tanked to the lowest level since March 2009!
    Market Outlook- Uptrend Under Pressure:
    The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the current rally is under pressure as investors patiently await earnings season and continue to digest the latest economic data. Until all the major averages violate their respective 50 DMA lines on a closing basis, the market deserves the bullish benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.
    Stock Market Research?
    Global Macro Research?
    Want To Follow Trends?
    Learn How We Can Help You!