Daily Market Commentary

Stocks Look Past Chinese Rate Hike & Disappointing Economic Data

Wednesday, July 6, 2011
Stock Market Commentary:

Stocks closed higher on Wednesday after China raised rates to curb their red-hot economy and investors digested Portugal’s downgrade. It is encouraging to see that all the major averages remain above their respective 50 DMA lines which suggests the bulls remain in control of this market. The next level of resistance is their respective 2011 highs.

Chinese Rate Hike, ISM Service Index, & Healthy Market Action:

Before Wednesday’s open, China decided to raise their key interest rate by 25 basis points to curb inflation and their robust economy. Keep in mind that a slowdown in China curbs demend for so-called risk assets. Therefore, this put mild pressure on a stocks and a slew of commodities. At 10am EST, the ISM released its service index which fell short of the Street’s estimates and bodes poorly for the economic recovery. It is also important to note that the major averages are simply pulling back to consolidate last week’s strong move. A light volume pullback after a large move is normally a very healthy event. The key is to analyze the pullback and make sure the major averages and leading stocks do not violate key areas of support. So far the pullback has been very healthy and for the bulls sake, lets hope this healthy action continues.

Market Outlook- Market In A Confirmed Uptrend:

The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the action remains bullish until the major averages and leading stocks violate their respective 50 DMA lines. Until then, the market deserves the bullish benefit of the doubt. Barring some unforeseen event, investors will likely be focusing on the jobs market this week and then turn their attention to Q2 earnings. If you are looking for specific help navigating this market, please contact us for more information.

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