Daily Market Commentary

2nd Half Of 2011 Begins!

Friday, July 1, 2011
Stock Market Commentary:

As of June 30, 2011’s close, all of the major U.S. averages closed up a few percentage points for the year. For the second quarter the results were flat to mixed, largely due to renewed debt woes in Europe, a global economic slowdown, and the end of QE 2. The major averages remain perched below short term resistance of their multi-week sideways trading range with support near the 200DMA and near term resistance near their respective 50DMA lines. Intermediate term resistance (shown above) remains near the 2011 highs.

Monday-Wednesday’s Action: Stocks Bounce Off Support (200 DMA line)

On Monday, stocks bounced off support (200 DMA line) as investors waited for the Greek government to vote on the latest round of austerity measures. U.S. consumer spending was unchanged in May for the first time in almost a year. The Commerce Department said consumer spending was flat, following 10 straight monthly gains and followed a downwardly revised +0.3% gain in April. The unchanged reading was slightly lower than the Street’s +0.1% forecast. After adjusting the data for inflation, spending slid -0.1% in May which does not bode well for the ongoing economic recovery.
On Tuesday, stocks opened higher after Nike reported solid quarterly results and the S&P Case-Shiller index topped estimates. The S&P/Case-Shiller composite index of 20 metropolitan areas slid -0.1% on a seasonally adjusted basis. This topped the Street’s estimate for a decline of -0.2% and suggests buyers showed up in the second quarter. On a non-seasonally adjusted basis, the index increased +0.7% which was its first advance in eight months. Elsewhere, investors bid “risk” assets higher ahead of Greece’s austerity vote on Wednesday.
Before Wednesday’s open, the Greek Parliament passed a key vote which allows the country to begin their much needed austerity measures. So-called risk assets (stocks, currencies, commodities, etc.) were volatile right after the announcement but edged higher as investors digested the news. Part 2 of the vote passed on Thursday which helped allay the near term debt woes from Greece. Elsewhere, the National Association of Realtors said pending home sales vaulted +8.2% from April which easily topped the Street’s estimate for a +3% gain. This was the latest in a series of stronger-than-expected economic reports from the ailing housing market and bodes well, by extension, for the broader economy.

Thursday & Friday’s Action: Stocks Rally Into Resistance (50 DMA Line)

On Thursday, the Labor Department said initial jobless claims fell by -1,000 last week to 428,000. The longer term four-week average, came in at 426,750, which remained above the dreaded 400,000 mark. Investors were happy to see that Chicago PMI jumped to 61.1 which easily topped the Street’s estimate for 53 and bodes well for the economic recovery. In other news, the second quarter came to a close which also marks the end of the Fed’s QE II program. It will be interesting to see if risk assets and the broader economy can continue to advance even when QE II is off the table. Stocks opened flat to lower on Friday after slower than expected economic news was released from Asia (Taiwan, China, and Japan). Markets barely moved after the latest read on U.S. consumer confidence and the ISM mfg data were positive.

Market Outlook- Market In A Confirmed Uptrend:

The last week of June’s strong action suggests the market is back in a confirmed rally. Normally, we like to see one powerful up day to confirm a new rally and we like to see the major averages exhibit strong action in the days and weeks that follow. On Tuesday, June 21, 2011 we said the Nasdaq produced a new FTD which confirmed the latest rally attempt and then two days later said the rally failed when stocks were smacked in heavy trade. However, hindsight shows us that we erred by saying the rally failed because the bulls showed up and promptly defended the 200 DMA line. Or, if you prefer, one can argue that the new rally was confirmed when the major averages jumped back above their respective 50 DMA lines in late June. In either event, it is pointless to argue with the market. The action is strong and remains strong as long as the major averages remain above their respective 50 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.

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