Monday, May 17, 2010
Market Commentary:

The major averages closed higher after spending most of the session in the red as crude oil slide below the psychologically important $70 a barrel level and New York’s manufacturing slowed. Volume totals were reported lower on the Nasdaq and the NYSE compared to Friday’s total which was not an encouraging sign. Decliners led advancers by a 23-to-16 ratio on the NYSE and by a very small margin on the Nasdaq exchange.  New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows on the Nasdaq exchange. There were only 7 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the 3 issues that appeared on the prior session. 

Crude & Copper Break Below 200 DMA Lines:

All but one of the 39 energy companies in the benchmark S&P 500 Index fell after crude oil dipped below $70 a barrel for the first time in three months. BP (BP) finally enjoyed some success after the company inserted a one mile pipe into the oil leak. The pipe will pump oil and gas to an oil tanker, 5000 feet above the leak, which will temporarily collect and store it before the oil is transferred, using a different vessel, to an oil storage facility on land. It is important to note that crude oil is used a good proxy for the strength of the overall economy. Therefore, the fact that crude has sliced and closed below its longer term 200 DMA line bodes poorly for the economic recovery. It is also disconcerting to see copper, another proxy for the global recovery, slice and close below its respective 200 DMA line on Monday.

EU Woes Continue:

European finance ministers met in Brussels to discuss their plans on reducing their nations’ wild deficits and aid them in balancing their budgets.  Spain and Portugal have already announced budget cuts which are designed to reduce their ballooning debt. Meanwhile, the euro positively reversed, opened lower and closed higher, after a violent 4 week sell off. Remember that over the past 4 consecutive weeks the euro has fallen sharply and is currently due for an “oversold bounce” of some sort. 

Market Action- In A Correction:

The NYSE composite closed below its respective 200 DMA line for the second straight session which is not a healthy sign. Furthermore, the S&P 500 and the Nasdaq composite undercut last Monday’s lows which means the day count has been reset for those indexes. The fact that the Nasdaq closed higher today means that it marked Day 1 of a new rally attempt and the earliest a possible FTD can emerge for that index would be Thursday. However, the Dow Jones Industrial Average has yet to violate last Monday’s low which means that it just finished Day 6 of its current rally attempt and the window for a proper FTD remains open (until 5.10.10’s low of 10,386 is breached). What does all this mean for investors? Simple, the market is in a correction which reiterates the importance of adopting a defense stance until a new rally is confirmed. Trade accordingly.
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