Monday, October 03, 2011
Stock Market Commentary:

October opened on a negative note after Greece said it will not be able to meet its deficit targets. All the major U.S. averages are decidedly negative for the year and are flirting with bear market territory (marked by a decline of >20% from a recent high). Several key risk assets (multiple stock markets around the world, Copper, Crude Oil, etc.) officially entered bear market territory in recent months which bodes poorly for U.S. stocks and the global economy. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. Now, the major averages are simply testing support of their two month base but the S&P 500 and Russell 2000 both hit fresh 2011 lows today while the Dow Jones Industrial Average and Tech heavy Nasdaq composite are just above their 2011 lows. Therefore support has been breached in the S&P 500 and small-cap Russell 2000 index which means one should expect another leg lower to commence. Please do not take this lightly and trade accordingly.

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ISM MFG Data Tops Estimates But Stocks Flirt With Support (2011 Lows)

Stocks slid to fresh 2011 lows on Monday after Greece said it will not be able to meet its deficit targets. In the U.S., the ISM manufacturing index topped estimates for 50.5 and came in at 51.6 in September which also topped August’s reading of 50.6. A separate report released by the Commerce Department showed that construction spending also topped estimates with a gain of +1.4% to an annual rate of $799.15 billion in August. However, since the stock market usually discounts 6-9 months in the future any given days economic data has little to do with broader multi-month trends that are in place. I had an exchange with @steveliesman about this very subject today on twitter.
Market Outlook- Market In A Correction:
The major U.S. averages are back in a “correction” as they continue to flirt and in some cases hit fresh 2011 lows. Allow us to be clear: If all the major averages break below their 2011 lows, then we will likely see another leg down. Please, trade accordingly! Several high ranked leaders violated their respective 50 DMA lines in late September which bodes poorly for the bulls and suggests the bears are getting stronger. The latest follow-through day (FTD) which began on August 23, 2011 has officially ended which means we will begin “counting” days before a new rally can be confirmed. In addition, it is important to note that the bears remain in control of this market until the major averages trade above their longer and shorter term moving averages (50 and 200 DMA lines). Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. . If you are looking for specific help navigating this market, please contact us for more information.

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Coming Up This Week:
TUESDAY: Factory orders, Bernanke speaks, Apple iPhone event; Earnings from Yum Brands
WEDNESDAY: Weekly mortgage apps, Challenger job-cut report, ADP employment report, IS non-mfg index, oil inventories; Earnings from Costco, Monsanto, Marriott
THURSDAY: BoE announcement, ECB announcement, jobless claims, chain-store sales; Earnings from Constellation Brands
FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint’s 4G plans unveiled
Source: CNBC.com