Wednesday, October 05, 2011
Stock Market Commentary:

Stocks enjoyed another late day rally as investors digested a stronger-than-expected ADP report. Wednesday marked Day 2 of a new rally attempt which means that as long as Tuesday’s lows are not breached the earliest a proper follow-through day (FTD) could emerge will be Friday. However, if Tuesday’s lows are breached the day count will be reset. The S&P 500 briefly entered bear market territory defined by a decline of >20% from its recent high however quickly bounced back. All the major U.S. averages are decidedly negative for the year and are flirting with bear market territory which is not ideal. 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. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. All the major averages are flirting with support (2011 lows) are until they all break below support, one should expect this sloppy sideways action to continue.

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ADP Report & ISM Service Index Top Estimates:

Before Wednesday’s open, ADP, the country’s largest private payrolls company, said U.S. employers added 91,000 new jobs which easily topped the Street’s estimates. However, last month the company said jobs rose but the Labor Department said zero new jobs were created in August. Therefore, it is interesting to see what the Labor Department will say on when they release September’s total this Friday. Elsewhere, the ISM service index topped estimates and rose 3.7 points to 56.5. A reading over 50 indicates growth and bodes well for the ongoing economic recovery.

Market Outlook- In A Correction:

The major U.S. averages are back in a “correction” as they continue to flirt and in some cases hit fresh 2011 lows. Allow us to be clear: If all the major averages break below their 2011 lows, then we will likely see another leg down. Please, trade accordingly! Several high ranked leaders violated their respective 50 DMA lines in late September which bodes poorly for the bulls and suggests the bears are getting stronger. The latest follow-through day (FTD) which began on August 23, 2011 has officially ended which means we will begin “counting” days before a new rally can be confirmed. In addition, it is important to note that the bears remain in control of this market until the major averages trade above their longer and shorter term moving averages (50 & 200 DMA lines). 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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Coming Up This Week:

THURSDAY: BoE announcement, ECB announcement, jobless claims, chain-store sales; Earnings from Constellation Brands
FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint’s 4G plans unveiled
Source: CNBC.com