Market In A Correction: Stocks Continue To Slide

Byinfo@50park.com
Market in a Correction
Market in a Correction

Tuesday, April 10, 2012
Stock Market Commentary:

Stocks and other risk assets fell on Tuesday after equity markets in Europe plunged in heavy volume and the world awaits Q1 earnings season to begin. After Tuesday’s close, Alcoa (AA) officially kicked off earnings season and as always, it will be interesting to see how companies did last quarter and how their stocks react to the news.  The fact that the Dow Jones Industrial Average and the Small Cap Russell 2000 index broke its 50 DMA line on Monday suggests this rally is under pressure. If the other major averages follow suit, then the market will officially enter a correction. The next level of support for the S&P 500 and Nasdaq composite are their respective 50 DMA lines.

Q1 Earnings Season Begins & Economic Data Fails To Impress:

On Tuesday, stocks in Europe were smacked as debt woes resurfaced and the world awaited the official start to Q1 earnings season. Our longstanding readers know that in addition to looking at the company’s numbers we pay close attention to how the stocks, and the major averages, react to the data. This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price action.  Economic data failed to impress. The Commerce Department said wholesale inventories rose more than expected in February. Inventories rose +0.9% to a record $478.9 billion which topped the Street’s forecast for a +0.5% gain. The National Federation of Independent Business said its index, which measures confidence among small businesses, slid for the first time in 6-months which reiterates recent concerns regarding a slowdown in Q1 economic growth. The index fell to 92.5 in March from 94.3 in February.

Market Outlook- In A Correction

From our point of view, the stock market is back in a correction as the Dow Jones Industrial Average, Russell 2000, and S&P 500 all traded below their respective 50 DMA lines. Remember, it is quite normal to see markets pullback to digest their latest move but from a risk/reward standpoint, being heavily long right now does not offer an optimal risk/reward level. As always, keep your losses small and never argue with the tape. 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!
 

Similar Posts

  • Stocks Fall After Nikkei Plunges over 6% As Correction Deepens!

    Byinfo@50park.com

    Monday, March 14, 2011 Stock Market Commentary: Japan’s benchmark Nikkei index plunged over -6% on Monday as the country struggles to contain the effects of Friday’s devastating earthquake. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective…

  • Week In Review- 4th Consecutive Weekly Decline! 2.5.10

    Byinfo@50park.com

    Looking at the market, Thursday’s ominous action took out Monday’s lows and effectively ended the brief rally attempt which suggests a steeper correction may unfold and resets the day count for a proper follow-through day to emerge. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is paramount. Our readers know that our defensive stance is not new- we have been defensive since January 23, 2010!

  • Stocks Rally On New Bank Rules

    Byinfo@50park.com

    Monday’s action was a strong sign for the market rally that began on the September 1, 2010 follow-through day (FTD). Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. It was encouraging to see a flurry of high-ranked leaders trigger fresh technical buy signals and break out of sound bases in recent sessions. The next important level to watch for the major averages are their respective 200-day moving average (DMA) lines. It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly.

  • Stocks Rally On Favorable Economic Data

    Byinfo@50park.com

    At this point, the Dow Jones Industrial Average and the NYSE Composite Index have traded above resistance at their long term 200-day moving average (DMA) lines and recent chart highs. The tech-heavy Nasdaq Composite, benchmark S&P 500, and small-cap Russell 2000 index remain slightly below their recent chart highs. However, the fact that all of the major averages are trading above their respective 2-month downward trendlines bodes well for this five week rally. In order for a new leg higher to begin, all the major averages must close and remain above their respective resistance levels. Remember that the window remains open for for high-ranked stocks to be accumulated when they trigger fresh technical buy signals. Trade accordingly.

  • Stocks Up; Dollar Up= Bulls Are Strong!

    Byinfo@50park.com

    The bulls flexed their muscles today and sent the major averages higher even as the US dollar rallied! Volume, a critical component of institutional demand, was lower than Monday’s levels which indicated a lack of buying from the institutional crowd. However, the fact that the major averages were down for most of the session and closed near their intra day highs helps offset that concern.