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.” Then in early June the bulls showed up and defend the 200 DMA lines for the major averages. On Friday, the bulls managed send the benchmark S&P 500 index above the neckline of its bullish inverse head and shoulders pattern (shown above). The next level of resistance is the 50 DMA line and then 2012’s highs.
Monday-Wednesday’s Action- Bad News is “Good” News:
Stocks opened higher but closed lower on Monday as enthusiasm waned regarding Spain’s $125 billion bailout. The best headline I came across was one saying, “Spain Got Tarped.” The details of the plan were not ideal and showed EU leaders just throwing more debt at a debt crisis. After the initial and expected at the open on Monday, stocks fell hard and closed near their lows of the day as investors focused on the upcoming elections in Greece and Italy’s onerous debt burden.
Stocks ended with modest gains on Tuesday but volume, a critical component of institutional activity, was lighter than Monday, as investors looked passed Spain’s woes and focused on hopes that the recent spate of “bad” news will force the Fed’s hand into another round of QE when they meet next week. Cyprus, the third smallest country in the eurozone, sports a tiny population of under 1 million, and its economy only accounts for +0.2% of eurozone GDP asked for a bailout. Yields on Spanish and Italian debt jumped on the news.
The major averages ended lower on Wednesday as sellers showed up and sent stocks lower before the close. The economic data in the U.S. was less than stellar. Retail sales fell -0.2% in May which exceeded the Street’s estimate for a decline of -0.1%. Elsewhere, producer prices missed estimates, falling -1% in May while core prices met estimates, rising +0.2%.
Thursday & Friday’s Action- Fed, ECB, Someone Save Us:
Stocks enjoyed nice gains on Thursday after global Central Banks stepped up and said they are willing to act if the Greek elections spook markets. The Labor Department said weekly jobless claims to rose to 386,000 from 380,000 which topped the Street’s estimate for 375,000. Overall consumer prices slid by -0.3%in May which topped the Street’s estimate for a decline of –0.2%. Core prices rose by +0.2% which topped the Street’s estimate for a gain of +0.1%. The government said, for the first quarter the current deficit data totaled $137.3billion, which is greater than the $130.9 billion deficit that had been anticipated. Again, stocks rallied on hopes that “bad” data will force the Fed’s (and other central bank’s) hand. Stocks rallied on Friday after the latest round of economic data was released. The data suggested that the US economy is “slowing” which investors are hoping will force the Fed’s hand at their next meeting later this month.
Market Outlook- In A Correction
From our point of view, the market is back in a correction now that all the major averages are back below their respective 50 DMA lines. Looking forward, we want to see a powerful accumulation day to confirm the latest rally attempt. Technically, the 200 DMA line and June’s lows are the next level of support while the 50 DMA line is the next level of resistance for the major averages. 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!
Stocks Back To Break-Even For The Year Stocks rallied sharply last week, led by beaten down areas (energy, materials, transports, etc) that bounced from deeply oversold levels. Not much changed last week as the same underlying conditions, we have outlined for you in recent months, continue to exist beneath the surface. The S&P 500 is back to breakeven for 2015…
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 Breakout Of Bullish Head and Shoulders Pattern Stocks rallied nicely last week and are once again flirting with major resistance (record highs) after the government reported a stronger than expected jobs report. The bullish fundamental catalyst is that Brexit means more easy money from global central banks and (for now) that is bullish for stocks….
Friday, March 23, 2012 Stock Market Commentary: Stocks and other risk assets ended the week mixed as weaker than expected economic data from China and Europe renewed fears of a global slowdown. As we have been mentioning for weeks, the market is extended to the upside and we would not be surprised to see a…
Wednesday, January 26, 2011 Stock Market Commentary: The major averages traded in a narrow range on Wednesday as new home sales surged and the Fed held rates steady near historic lows. The benchmark S&P 500 index managed to hit a new recovery high which took pressure off this current (and robust) 22-week rally. The fact…
Monday, November 14, 2011 Stock Market Commentary: The S&P 500 and Nasdaq Composite continued flirting with the break-even level for 2011 as investors continue focusing on the situation in Europe. As you know by now, from our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis-…
