200 DMA Line Is Under Attack!

Monday, August 1, 2011
Stock Market Commentary:

Stocks were volatile on Monday after the latest manufacturing data plunged to the lowest level since July 2009 and E.U. contagion woes resurfaced in Italy! It was disconcerting to see all the major averages slice and close below their respective 50 DMA lines in the final week of July but so far the 200 DMA line appears to be holding. On Monday, the S&P 500 sliced below its 200 DMA line but the bulls quickly showed up and quelled the bearish pressure and defended it by the close. The fact that all the major averages are below their respective 50 DMA lines suggests the bears are getting stronger and caution is paramount until the technical damage is repaired. Looking forward, the next level of support are the 2011 lows/the 200 DMA lines and the next level of resistance are the 2011 highs.

Debt Deal Reached But U.S. Economy Sputters:

Late Sunday night, President Obama announced a bipartisan deal that resolved the long debt saga. Immediately, futures soared nearly 200 points which set a positive tone for Monday’s session. However, the gains were short lived. On Monday, stocks opened higher but fell hard around 10am EST after July’s ISM manufacturing index slid to 50.9 which was the lowest reading since July 2009. July’s reading was below the Street’s average estimate and below June’s reading of 55.3. On the plus side, the reading came in just above the boom/bust level of 50. The July ISM number is the first piece of economic data for the third quarter which bodes poorly for Q3 GDP especially since Q1 and Q2 GDP were such a disappointment. Q2 GDP only rose +1.3% which was below the +1.8% average estimate and Q1 GDP was revised down from +1.9% to +0.4%. Since then, economists have lowered their second half expectations between 2-2.5%. This Friday, the government will release July’s non farm payrolls report which will give investors a more definitive view of the ailing jobs market.

Market Outlook- Market In A Correction

The latest action in the major averages suggests the market is back in a correction as all the major averages are flirting with their respective 200 DMA lines.  Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests caution is paramount at this stage until all the major averages rally back towards their respective 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.
 

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