Stocks and a slew of other “riskon” assets bounced from deeply oversold levels as hope spread that another round of global monetary easing will curb the economic slowdown across the globe. In early May, all the major averages sliced below their respective 50 DMA lines which prompted us to label this market “in a correction.” For the past few weeks, we have written about the importance of being defensive especially because the action in the major averages and a slew of leading stocks deteriorated. After the sharp fall, the bulls showed up and are doing their best to defend the longer term 200 DMA lines for the major averages. If that level is “broken” on a closing basis- then we have to expect another leg lower to begin.
Stocks rallied on Monday erasing earlier losses and marked Day 1 of a new rally attempt. Stocks looked passed a lackluster non-manufacturing PMI reading from China and were hopeful that the EU crisis was not deteriorating further. The CRB Commodity Index managed to snap a four day losing streak which also helped stocks rally. The euro, which is a great barometer for “riskon” assets, also rallied from deeply oversold levels which paved the way for a “riskon” day.
Stocks rallied on Tuesday after the latest round of economic data was mixed. European retail sales slid but non-manufacturing PMI improved marginally. Finance ministers from the G7 held an emergency teleconference but failed to come up with any ground breaking solutions. The latest ISM Services Index rose to 53.7 in May from 53.5 in April. Moody’s one of the popular rating agencies, slashed the ratings on several European banks.
Stocks extended their gains on Wednesday after the ECB held rates steady at 1% and optimism spread. The ECB held its key interest rate unchanged at 1% which matched expectations. ECB President Mario Draghi said the central bank will do its best to curb inflation but added that inflation pressures remain subdued. Draghi also said the ECB expects inflation should remain above 2% for the rest of 2012 and then fall to 1-2% in 2013.
Thursday & Friday’s Action- Stocks Slide As Enthusiasm Wanes:
Before Thursday’s open, China lowered their interest rates by 25 basis points to 6.31% to help boost their “sagging economy.” The PBC move was not expected and helped send a slew of risk assets higher. Janet Yellen, the vice chair of the Fed, gave a speech in Boston where she made a case for another round of monetary easing to protect and stimulate the US economy from the impact of the euro zone debt crisis. After the open, Bernanke testified before the Congressional Joint Economic Committee and reiterated his recent stance regarding continued “downside” risks to the economy and capital markets. In European news, Spain has not yet requested assistance from the ECB and has resisted being placed under international supervision. However, Reuters reported that both German and European Union officials are urgently searching for solutions to their onerous debt problems. Stocks sold off in the final hour after the U.S. Fed boosted capital requirements for several of the country’s largest banks. Stocks rallied on Friday as enthusiasm regarding the global economy improved.
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 still 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.
Tuesday, October 19, 2010 Stock Market Commentary: Stocks, commodities and a slew of other dollar denominated assets fell sharply on Tuesday after China raised rates and the latest round of economic and earnings data was released. Tuesday marked the 23rd anniversary for one of the largest declines in the history of the stock market. The…
For the most part, the major averages and leading stocks are pausing to digest their recent gains as investors make their way through the latest round of economic and earnings data. Until a clear picture can be formed as to how companies fared last quarter, one could easily expect to see more of this sideways action to continue. The market just began its 46th week since the March lows and the rally remains intact as long as the major averages continue trading above their respective 50-day moving average (DMA) lines. Trade accordingly.
Friday, October 26, 2012 Stock Market Commentary: The major averages ended in the red last week but the bulls showed up and defended the Nasdaq’s 200 DMA line- for now. So far, this is nothing more than a normal pullback after a big run evidenced by the fact that the benchmark S&P 500 is just…
The major averages and leading stocks are pulling back to digest their recent gains as investors make their way through the latest round of economic and earnings data. So far, the market’s reaction has been tepid at best which puts serious pressure on the current rally. Until a clear picture can be formed as to how companies fared last quarter, one could easily expect to see more of this sideways to lower action to continue. The market is in the middle of its46th week since the March lows and the rally remains intact, albeit under serious pressure from our point of view. The Dow Jones Industrial Average sliced and closed below its 50 DMA line on heavy volume for the first time since October which is an ominous sign. The Nasdaq and the S&P 500 closed above their respective 50 DMA lines which, in the near term, is a healthy sign. Now that the market is clearly under pressure one would be wise to adjust their exposure accordingly.
It is important to note that the major averages have been steadily rallying since early February and a pullback of some sort should be expected. Tuesday marked the latest distribution day since the rally was confirmed on the March 1, 2010 follow-through day (FTD). According to the paper, there are 6 distribution days for the NYSE, 5 for the S&P 500, 4 for the Dow, and 3 for the Nasdaq in recent weeks. This puts some pressure on this 9-week rally, but has yet to cause any technical damage. The fact that the market continues to shrug off any and all negative data bodes very well for this 13-month bull market.
