Friday, February 12, 2010
Market Commentary:

The major averages snapped a four week losing streak after the EU said it will help Greece with its ballooning budget deficits. Stocks closed lower on Monday after concern spread that several European countries may default on their debt. Greece, Spain and Portugal are the three primary suspects for the latest sovereign debt crisis. 

Monday- Friday Review:

The primary concern is that these countries will need outside assistance to stay afloat as they make their way through the worst recession since WWII. Meanwhile, the Congressional Budget Office expects America’s debt to reach +65% of US GDP this year which would still be below the +77% of GDP the European Commission expects for Germany, U.K. is running closer to +80% and Japan is in the lead with a whopping +180%. 

Tuesday & Wednesday’s Action:

Stocks enjoyed sharp gains on Tuesday as the US dollar fell on speculation that Greece will receive European aid to tackle its massive budget deficit. European Central Bank President, Jean-Claude Trichet, unexpectedly left a meeting in Sydney one day ahead of schedule and returned to Europe to discuss this issue. In related news, European Commission President Jose Barroso supported the euro when he directly said that investors would be wrong to bet against it.Stocks closed slightly lower on Wednesday as the world awaited the EU’s decision.

EU Helps Greece:

On Thursday, the EU stepped up and said they would help Greece tackle the worst economic crisis the continent has experienced since the euro was established over 11 years ago. It is important to note that Portugal and Spain’s growing budget deficits have yet to be addressed, which could come back and haunt the EU later this year.

Inflation Eases In China & US Jobless Claims Unexpectedly Fall:

In other news, inflation concerns eased in China after consumer prices rose less than expected in January. This helped allay fears that the Chinese central bank will continue taking aggressive steps to curb its surging economy. Domestically, the Labor Department said that weekly jobless claims unexpectedly dropped last week. The weaker than expected report is a net positive for the ailing jobs market and bodes well for the economy.

Market Action- In A Correction:

Looking at the market, as long as last Friday’s (2.5.10) lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders breakout of sound bases. However, if last Friday’s (2.5.10) lows are breached then the day count will be reset and a steeper correction may unfold.
It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now acting as resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data which remains a concern. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is paramount.
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