Friday, January 06, 2012
Stock Market Commentary:

Stocks and a slew of other risk assets ended mixed to lower for a second straight day as fears resurfaced out of Europe. Investors are hopeful that 2012 will be a better year for U.S. equities and risk assets than 2011 or 2010. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line (shown above). Looking forward, the next area of resistance remains Q4’s highs (1292) and then 2011 highs near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above  its 200 DMA line.

Monday-Wednesday’s Action: Strong Start to 2012

On Monday, all markets in the U.S. were closed in observance of New Year. Stocks opened higher on Tuesday which was the first full trading day of 2012. News on the economic front helped the risk on story. PMI data from China and Europe were positive which helped offset concerns of a global economic slowdown. In the U.S.. manufacturing data accelerated in December, rising to 53.9  which topped the Street’s estimate of 53.2. A separate report released by the Commerce Department showed that construction spending rose +1.2% in November which was the highest level since June 2010.
On Wednesday, stocks slid as fears resurfaced regarding refinancing Europe’s onerous debt levels. Overnight, commercial banks in Europe deposited a new record of 453B euros (~$591B) at the European Central Bank (ECB) which sparked fears regarding the underlying health of the European banking system. Italy’s largest bank, UniCredit SpA, sold new shares to raise 7.5B euros (~$9.8B) to help strengthen its capital position.

Thursday & Friday’s Action: Stocks Rally On Strong Jobs Data

On Thursday stocks in Europe and Asia sold off after the euro fell to a fresh 16-month low as fears spread regarding the continents onerous debt levels. The closely watched euro fell below 1.28 for the first time since September 2010 which normally bodes poorly for other risk assets. However, U.S. stocks curbed their losses as investors digested a much stronger than expected jobs report. ADP, the country’s largest private payrolls firm, said U.S. employers added +325,000 new jobs last month which easily topped the Street’s estimate. Before Friday’s open the Labor Department said U.S. employers added 200,000 new jobs in December which topped the Street’s estimate. Investors were also happy to see the unemployment report fall to 8.5% which is another step in the “right” direction. However, fears regarding the ongoing EU debt crisis still dominated which put downward pressure on stocks.

Market Outlook- New Rally Confirmed

Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (downward trendline and 200 DMA line). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!