Tuesday, October 25, 2011
Stock Market Commentary:

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- yet again. 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.

Earnings, Economic Data & Europe Drag Stocks Lower

Stocks fell on Tuesday after rumors spread that European leaders will not resolve their onerous debt concerns when they meet on Wednesday. Since 2008, we have been telling clients that is impossible to solve a debt crisis with more debt! However, the cognoscenti feel otherwise. Stocks were also under pressure after several closely followed companies missed Q3 numbers: UPS, Netflix (NFLX), and Texas Instruments (TXN), to name a few.
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.

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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