Friday, May 18, 2012
Stock Market Commentary:

Stocks and a slew of other “risk assets” fell for a third straight week after the latest round of economic and earnings data suggests the global economy is slowing, not growing. Now that we are in the latter half of earnings season, the reaction by the major averages has been less than stellar as all the major averages have given back most of their gains for the year. Our longstanding clients know that we not only focus on the actual numbers but how the major averages (and individual stocks) react to the numbers. This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price. So far the action is not ideal. We find it worrisome to see all the major averages fall and stay below April’s lows & their respective 50 DMA lines. It is important to note that the Russell 2000 and NYSE composite are below their respective 200 DMA lines (which is not a healthy sign). At this point, the next level of support for the other popular averages is their respective 200 DMA lines..

Monday-Wednesday’s Action- Stocks Fall As Greece Woes Flare Up Again:

Stocks fell on Monday as fresh concerns spread regarding the EU Debt crisis. Greece returned to the spotlight after a political impasse caused many to question whether or not the debt-laden state will be able to form a new elected government. In other EU news, debt yields surged of other countries in the euro zone periphery. This sent the euro to a fresh 2012 low and set the stage for the risk-off theme for the rest of the week.
Stocks opened higher but ended lower on Tuesday after a report was released that showed a possible run on Greek banks. The report said $800B was withdrawn from Greek banks which is not an insignificant sum. This added more pressure to the already questionable presence of Greece in the already fragile euro zone. On the economic front, a slew of data was released. Retail sales rose by +0.1% in April which missed the Street’s estimate for a +0.2% gain. The Consumer Price Index was flat from the prior month, while core CPI rose by 0.2%. Meanwhile, the Empire State Manufacturing Index for May easily topped estimates and rose to 17.1 from 6.6 in April.
Stocks opened higher on Wednesday after the heads of state of France & Germany (Hollande and Merkel) said they want Greece to stay in the euro zone. Housing starts in the US jumped 2.6% while building permits fell by -7%. A slew of housing stocks rallied on the news. However, the bears showed up (again) after the minutes of the latest Fed meeting showed that FOMC members were not immediately considering QE3.

Thursday & Friday’s Action: Fitch Slashes Greece’s Credit Rating & Moody’s Cuts A Slew of Spanish Banks

Stock fell hard on Thursday after yields on Spanish debt jumped above 6%, Fitch downgraded Greece’s credit rating by one notch (to CCC from B-), and a slew of economic data missed estimates. Weekly jobless claims in the US were unchanged at 370,000 while leading indicators fell for the first time in seven months and the Philly Fed index fell sharply. Moody’s, another popular rating agency, downgraded a slew of Spanish banks which put more pressure on the already troubled euro. Stocks were relatively quiet on Friday after the much anticipated Facebook finally priced at $38 a share. Of course, the opening print was $43.

Market Outlook- In A Correction

From our point of view, the market is back in a correction now that all the major averages are back below their respective 50 DMA lines. April’s lows were breached and in the short term should now serve as resistance.  As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!