Friday, October 21, 2011
Stock Market Commentary:

Stocks ended the third week of October mixed with the DJIA & SPX closing higher but the tech-heavy Nasdaq composite closing slightly lower due to Apple’s EPS miss. Stocks confirmed their latest rally attempt on Tuesday (10.18.11) day 12 of their rally attempt when the S&P 500 and NYSE composite scored proper follow-through days (FTD).  It is important to note that every major rally in history began with a FTD but not every FTD leads to a new rally. That said, one can err on the bullish side as long as the major averages remain above their 50 DMA lines. The next important area of resistance is their September highs and then their 200 DMA lines. We would be remiss not to note that several key risk assets (multiple stock markets around the world, Copper, Crude Oil, etc.) officially entered bear market territory over the in recent months which bodes poorly for U.S. stocks and the global economy. However, it is “encouraging” to see U.S. stocks outperform these markets which is a sign of strength.

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Monday-Wednesday’s Action: Stocks Score FTD!

Over the weekend, the G-20 did little more than pay lip service to the ongoing debt woes in Europe. On Monday, stocks were smacked after Germany, Europe’s largest economy, dampened expectations that EU leaders will reach a deal in the near future. Before Monday’s open, Citigroup (C) beat estimates but WellsFargo (WFC) missed estimates. News on the economic front was negative. The New York Fed’s Empire State index was little changed this month to negative -8.48 from negative -8.82 in September. However, this missed the Street’s estimates for a reading of negative -4.  Separately, industrial production rose +0.2% in September which matched estimates.
Stocks scored a proper FTD on Tuesday after rumor spread that Europe’s bailout plan would be passed, sooner rather than later. Earnings were not ideal, Johnson & Johnson (JNJ), Bank of America (BAC), Goldman Sachs (GS) and Apple Inc. (AAPL) all missed estimates. The news from the economic front was not ideal. The U.S. producer price index (PPI), which is used to measure inflation and has been very tame of late, topped estimates in September and jumped to the fastest increase in five months. The Labor Department said wholesale prices rose +0.8% which easily topped the +0.2% reading expected on Wall Street. S&P, one of the three popular rating agencies, put France on a negative watch, downgraded Spain’s debt, and the latest data from China indicated their economy continued to slow.
Stocks were relatively quiet on Wednesday as investors digested a slew of earnings and economic data. The latest round of earnings were mixed which has yet to give investors a clear “tell” on how Q3 earnings season will play out.

Thursday & Friday – Stocks Rally Ahead of E.U. Meeting:

The latest round of earnings data was mixed which largely echoed what we have seen this week from corporate America. Greek citizens rioted for the second day as their government voted on the latest round of austerity measures. A large meeting is planned in Europe this weekend to help resolve their ongoing debt woes. In the U.S., the economic data was mixed. The Labor Department said weekly jobless claims  slid by -6,000 to 403,000 which topped the decline of -4,000 expected on Wall Street. The Philly Fed index, which measures manufacturing activity in the Mid-Atlantic region, rose to +9.7 in October which is the highest reading since April and topped the +9.0 forecast.  Meanwhile, leading indicators rose +0.2% last month for its fifth consecutive gain but fell short of the +0.3% forecast.  Finally, the National Association of Realtors said existing home sales slid -3% to an annual rate of +4.91 million last month which also topped estimates. Stocks soared on Friday as optimism spread that E.U. leaders will make some significant progress during their meeting this weekend to tackle their mounting debt woes.

Market Outlook- Confirmed Rally:

The major U.S. averages are back in a new confirmed rally and broke above resistance of their 6-week base. The benchmark S&P 500 index scored a proper FTD on Tuesday, October 18, 2011, i.e. Day 12,  when it rallied over 2% on heavier volume than the prior session. The next important area of resistance is its longer term 200 DMA line. In addition, it is important to note that the bulls scored a victory since many of the major averages closed above their downward sloping 50 DMA lines for the first time since late July! Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. If you are looking for specific help navigating this market, please contact us for more information.

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