Stocks and other risk assets fell on Wednesday after the latest round of economic data was released. 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. Since then, stocks have been enjoying a very strong uptrend. The benchmark S&P 500 paused near its 2011 high (~1370) before moving higher and that level should now become support. The next level of support would be the 50 DMA line, then a deeper 5-9% pullback. It is important to note that the bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line.

Economic Fears Resurface:

Stocks fell on Wednesday as investors digested the latest round of mixed economic data. The Mortgage Bankers Association said weekly mortgage applications rose last week which bodes well for the ongoing housing recovery. The report showed that refinancing demand slid for a 6th consecutive week as interest rates edged higher. Meanwhile, the Commerce Department said durable goods missed estimates and rose at +2.2% in February. Future business investment also missed forecasts. Separately, investors were concerned after Ben Bernanke told ABC News Tuesday evening that the economy is still not out of the woods yet which raised the odds for QE3. Bernanke’s main concern is that this recovery is a shallow version of the Great Depression. After the 1929 meltdown (similar to 2008) the economy and stock market briefly rebounded before relapsing (largely due to poor decisions from the Government regarding both fiscal and monetary policy) in the mid 1930’s. The only thing that saved the economy in the late 1930’s was World War II. Bernanke doesn’t want to make the same mistake.

Market Outlook- Confirmed Rally