Friday, October 28, 2011
Stock Market Commentary:
Stocks surged in the final full trading week of October as European leaders finally were able to make a deal regarding Greece’s onerous debt levels and agreed to leverage their bailout plan 4 to 5 times in order to handle other debt laden states. All the major averages are now positive for the year which is a very healthy for this rally. It is also important to note that the Dow Jones Industrial Average is on track for its single largest monthly gain in history and the S&P 500 is on track for its best month since 1973! 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.
Monday-Wednesday’s Action: Stocks Successfully Test Support!
Over the weekend, EU leaders kicked the can down the road and reschedule yet another meeting on Wednesday to tackle their onerous debt levels. Elsewhere, shares of Catepillar Inc. (CAT) gapped up after topping Q3 estimates and raised their 2012 forecasts. The news on the M&A front was healthy- shares of RightNow Technologies (RNOW) and Healthspring Inc. (HS) gapped up after agreeing to be acquired on Monday.
Stocks fell on Tuesday and turned negative for the week as investors digested the latest round of lackluster earnings and EU leaders kicked the can down the road. Since 2008, we have been telling clients that is impossible to solve a debt crisis with more debt! However, the cognoscenti feel otherwise and as always we shall let the markets guide us.The news from the economic front was less than stellar. Consumer confidence in the U.S. unexpectedly fell in October to the lowest level since March 2009, during the “Great Recession.” Separately, the S&P Case/Shiller index of home prices in 20 major U.S. cities fell and missed estimates in August which reiterates how weak the housing market is right now.
Stocks bounced off support (SPX 1230) on Wednesday after Germany passed a plan to expand the EU bailout measure. In the U.S., durable goods topped estimates which bodes well for the economic recovery. Durable goods rose +1.7% in September which was the largest increase in six months and topped the +0.4% estimate. In other news, mortgage applications rose last week and recovered some of the losses from the previous week as demand for purchases and refinancing rose.
Thursday & Friday’s Action: Risk Assets Surge on EU Deal!
Stocks soared on Thursday after private lenders agreed to a 50% haircut on their Greek debt and EU leaders agreed to leverage the hell out of their EU bailout plan. French President Nicolas Sarkozy said the EFSF (European bailout fund) will be leveraged 4-to-5 times in an attempt to curb their excessive debt woes. Sarkozy also spoke with Chinese leader Hu Jintao who offered to help Europe from imploding. Economic data in the U.S. was positive, the Labor Department said weekly jobless claims came in at 402,000 which barely beat expectations. More importantly, GDP jumped +2.5% last quarter which matched estimates and bodes well for the economic recovery. Stocks were relatively quiet on Friday after consumer spending rose but incomes remained lackluster.
Market Outlook- Confirmed Rally:
The major U.S. averages are back in a new confirmed rally and broke above the mid-point/resistance of their 6-week bullish double bottom 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. 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.