Nikkei Bounces But U.S. Housing & Inflation Data Disappoint

Wednesday, March 16, 2011
Stock Market Commentary:

Japan’s benchmark Nikkei index jumped nearly +5% on Wednesday after falling -16% Monday and Tuesday. Stocks in the U.S. opened lower after disappointing housing and inflation data was released. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines on heavy turnover. The current crisis in the Middle East remains in flux which is putting upward pressure on oil and gold and downward pressure on equities. The benchmark S&P 500 has steadily fallen after briefly being up 100% from its March 2009 low, and still about -18% off its all-time high from October 2007.

Nikkei Bounces But U.S. Housing and Inflation Data Disappoint:

On Wednesday, Japan’s Nikkei index bounced back 5% or less than 1/3 of its prior two day shellacking. Elsewhere, U.S. economic news was less than stellar which sent U.S. stocks lower at the open. The Commerce Department said U.S. housing starts plunged to their slowest level since April 2009 which is ominous news for the ailing housing market and the ongoing economic recovery. The report also showed that building permits plummeted to a record low. Housing starts tanked –22.5% to a 479,000 annual rate with declines stretching across the entire country. This was also sharply lower than the Street’s forecast for 566,000. A separate report showed inflation increased on the wholesale level. The producer price index (PPI) rose 1.6% in February, easily topping January’s +0.8% increase and the Street’s estimate for an +0.8% gain.
Market Action- Market In A Correction; 28-Week Rally Ends
All the major averages sliced below their respective 50 DMA lines on Thursday, March 10, 2011. Then, on Friday, all the major averages except for the tech-heavy Nasdaq composite managed to repair that damage and close above their respective 50 DMA lines which was somewhat encouraging and marked Day 1 of a new rally attempt. However, Friday’s lows were promptly breached on Monday as all the major averages dove below their 50 DMA lines on heavy volume and continued falling all week. This ominous action reset the day count and reiterates the importance of raising cash and playing strong defense until a new FTD emerges. If you are looking for specific help navigating this market, please contact us for more information.

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