Friday, September 9, 2011
Stock Market Commentary:

Stocks fell on Friday as the major averages continued trading between support and resistance of their current base. At this point, the current rally is under pressure evidenced by several distribution days (heavy volume declines) since the latest FTD. It is important to note that 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.

Monday-Wednesday: Stocks Dragged Lower By Fresh European Debt Woes

Stocks were closed in the U.S. on Monday in observance of the Labor Day Holiday. However, overseas, stocks were smacked as a new round of fears spread concerning the ongoing EU debt saga and the health of the global economy. Stocks were smacked on Tuesday as the U.S. markets played catch up and fear spread that the U.S. and global economy would fall into a double dip recession.
On Wednesday, European stocks snapped a 4-day losing streak and U.S. stocks snapped a 3-day losing streak after a German court ruled in favor of the country’s participation in the Greek bailout. Investors around the world breathed a collective sigh of relief after a German court approved their country’s participation in the Greek bailout. Billionaire investor George Soros said the current crisis is “worse than Lehman.” His former partner, and legendary investor, Jim Rogers, said the Swiss Bank’s move on Tuesday was a “huge mistake.”  At 2pm, the Fed’s Beige Book was released which showed a continued slowdown across much of the nation.

Thursday & Friday’s Action: Bernanke & Obama Fail To Inspire Stocks:

Before Thursday’s open, the Bank of England (BOE) and European Central Bank (ECB) held rates steady but said downward pressure remains a concern. ECB President Trichet said threats to the Euro have worsened which put mild pressure on equity futures and the euro. In the U.S., the Labor Department said initial jobless claims rose 2k to 414,000 which topped the Street’s estimate for 400,000. Separately, the trade deficit for July totaled $44.8 billion, which was less than the Street’s estimate for $51.5 billion. Fed Chairman Ben Bernanke spoke on Thursday and largely reiterated his recent stance regarding the economy. At 7 pm EST, President Obama presented a $450 billion plan to revive the ailing jobs market and U.S. economy.
Stocks opened lower on Friday which suggests the market is not happy with the President’s plan. Elsewhere, wholesale inventories rose +0.8% in July which matched estimates. More bad news came out of Europe on Friday when the ECB said its Executive Board Member Juergen Stark will step down from his post by the end of the year. The reason for the surprise removal was the ongoing debate over European bonds.

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. 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 several distribution days emerge or 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.