Stocks Fall on Fresh EU Woes

Byinfo@50park.com

Thursday, August 25, 2011
Stock Market Commentary:

Stocks suffered a distribution day (heavy volume decline) on Thursday after fresh concern spread from Europe. A heavy volume decline so close to a follow-through day (FTD) puts pressure on this nascent rally. Therefore, the current rally is under pressure until the bulls show up and regain control of this market (a high volume rally). The major averages are technically in a new confirmed rally which means probing the long side may be prudent, if/when high ranked stocks begin to trigger fresh technical buy signals. Even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.

German Jitters Smack Stocks & Steve Jobs Resigns:

Stocks opened higher on Thursday but quickly turned lower after rumors spread that Germany’s credit rating may be cut. The rumors were put to bed after CNBC said S&P, Moody’s Investors Service, and Fitch Ratings affirmed their AAA ratings. In the U.S., the Labor Department said weekly jobless claims rose to +417k last week which easily topped the 405k expectation and bodes poorly for the ailing jobs market. In other news, Apple’s legendary CEO, Steve Jobs, resigned as CEO (but will remain Chairman) and Tim Cook, his long-time #2, took over as CEO.

Buffett Takes Major Stake in BAC:

The other major headline on Thursday was that Warren Buffett would invest $5 billion in Bank of America (BAC). An CNBC.com reported, “Bank of America will sell Berkshire 50,000 shares of cumulative perpetual preferred stock with a 6 percent annual dividend, it said in a statement Thursday. Bank of America can buy back the investment at any time by paying Buffett a 5 percent premium. Berkshire also will get warrants to buy 700 million Bank of America shares at an exercise price of just over $7.14 a share, with the ability to exercise any time in the next 10 years.” There is a lot of confusion as what the deal means. From our point of view, Buffett will collect a major premium the entire time he holds the warrants. If/when BAC is in a position to buy them back he will get an additional 5% over his annual 6% dividend. However, if BAC’s shares go to ZERO he losses $5billion.

Market Outlook- Rally Under Pressure!

The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. However, since then, they have gone virtually “no where” which puts the current rally under pressure. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.

Similar Posts

  • Week-In-Review: Stocks Tank On Final Week Before Election

    Byinfo@50park.com

    The Tape Is Weak In a normal, non easy money world, we would say the market is tracing out a classic topping pattern and the days are numbered for this bull market. Last week we saw several major global central banks become “less dovish.” That doesn’t mean they won’t announce more easy money if markets…

  • Stocks Quiet After ADP Report

    Byinfo@50park.com

    Market Action- Rally Under Pressure; Week 27
    It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November, January, and late February. From our point of view, the market remains in rally-mode until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks were a bit extended in recent months and this pullback (back to the 50 DMA lines) is very healthy as it shakes out the weaker hands and restores the the longer term health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.
    Are You Looking For Someone To Manage Your Money?
    Our Private Wealth Management Services Can Help You!

  • Healthy Economic Data Helps Stocks

    Byinfo@50park.com

    Looking at the market, the latest rally attempt was confirmed when a “cautious follow-through day” was produced by the Nasdaq Composite on Monday, March 1. Weighing into the decision to label the day a follow-through-day (FTD) was the strong action in leading stocks along with a great expansion noted in the new highs list. That action suggests that there is a healthy crop of strong stocks capable of fueling a substantial rally higher for the major averages. We will be looking out for any near-term distribution days (high volume declines) which would hurt the chances for this nascent rally. Until then, the bulls deserve the bullish benefit of the doubt as the major averages continue edging higher.
    It is a welcome sign to see the market continue to improve as investors digest the latest round of stronger than expected economic and earnings data. Remember that now that a new rally has been confirmed, the window is open to start buying high quality breakouts. Trade accordingly.

  • Stocks Mixed As Dollar Rallies

    Byinfo@50park.com

    The 12-week rally ended on Tuesday, November 16, 2010 after the major averages plunged in heavy volume back down towards their respective 50 DMA lines. In recent weeks, we have repeatedly written about how the major averages were experiencing wide-and-loose action after a big move and made it very clear that that was not a healthy sign. At this point, we are looking for a new rally to be confirmed with a new follow-through day before taking any new positions. However, we would be remiss not to note that the major averages deserve the bullish benefit of the doubt as long as they remain above their respective 50 DMA lines. Caution and patience are key at this point. Trade accordingly.

  • Adam Sarhan MarketWatch Quote: U.S. stocks down a bit; Wall Street waits for Fed

    Byinfo@50park.com

    By Kate Gibson, MarketWatch NEW YORK (MarketWatch) — U.S. stocks fell slightly on Wednesday after a two-day rally, with investors reluctant to make any big moves ahead of the Federal Reserve’s policy decision later in the day. “My expectation is we will sit in a sideways holding pattern until the Fed announcement,” said Randy Frederick, managing…