Thursday, October 06, 2011
Stock Market Commentary:

Stocks rallied on Thursday ahead of Friday’s non-farm payrolls report. Thursday marked Day 3 of a new rally attempt which means that as long as Tuesday’s lows (Day 1) 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. Earlier this week, 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. After testing support (2011 lows), the market is bouncing back towards resistance of their wide-and-loose 2-month base.

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Bank of England & European Central Bank Hold Rates Steady, U.S.  Jobless Claims Rise But Less Than Expected:

Before Thursday’s open, The Bank of England (BOE) and the European Central Bank (ECB) both left interest rates steady and said they are concerned with further downside risks to the economy. ECB President Jean-Claude Trichet said treats the euro zone economy have “intensified.”  This was Trichet’s last meeting before Mario Draghi, currently Italy’s central bank governor, takes over. The Bank of England, in contrast, announced a new plan to inject 75 billion pounds of new money to help stimulate UK’s lackluster economy. So far, the U.S. Fed, BOE, and Switzerland’s Central Bank have announced new measures to stimulate their economies, leaving the ECB as the only major central bank to not take action yet.  In the U.S., weekly jobless claims rose less than expected and are back above the closely followed 400,000 level. The Labor Department said weekly jobless benefits rose by 6,000 last week to 401,000. This fell short of the Street’s estimate for 410,000 claims.
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:

FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint’s 4G plans unveiled
Source: CNBC.com