Tuesday, August 31, 2010
Stock Market Commentary:

Stocks ended mixed as investors digested a slew of economic data. Tuesday’s reported volume totals were higher on the NYSE and the Nasdaq exchange compared to Monday’s levels which suggested churning – which is usually a sign of distribution. Decliners trumped advancers by near a 20-to-17 ratio on the NYSE and trailed by a 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 16 high-ranked companies from the CANSLIM.net Leaders List made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 19 issues that appeared on the prior session. For the year, the Dow Jones Industrial Average shed -4%, the S&P 500 Index fell -6%, an the tech-heavy Nasdaq Composite led the major averages lower, falling -6.8%. 

Stocks ‘Churn’ As A Slew Of Economic Data Is Digested:

Overnight, Asian stocks plunged, sending Japan’s Nikkei’s index to a 16-month low which bodes poorly for other capital markets. Elsewhere, two stronger than expected economic reports: the S&P Case-Shiller housing index and the latest read on consumer confidence, helped lift stocks in the first half of the session.  However, stocks fell after a weaker than expected PMI report and the minutes of the latest Fed meeting were released but closed flat for the day. The minutes of the latest Fed meeting showed more “infighting” within the Fed which suggests the Fed may be running out of “bullets” to stimulate a slowing economy.

Market Action- Day 3- In A Correction:

Tuesday marked Day 3 of a new rally attempt which means the earliest a possible follow-through day (FTD) could emerge will be Wednesday. However, if at anytime, Friday’s lows (Day 1) are breached then the day count will be reset. The technical action in the major averages has recently been weak while the latest round of economic data has provided a poor outlook for the market and the global recovery. Currently, resistance for the the major averages are their 50-day moving average (DMA) lines, then their longer-term 200 DMA lines while support remains July’s lows. It is also disconcerting to see weakness in the financial group. Meanwhile, the action in leading stocks and fact that some high-ranked leaders are breaking out of sound bases can be considered somewhat encouraging. Still there is importance in remaining cautious until the major averages are back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support. The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
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