Monday, October 17, 2011
Stock Market Commentary:

Monday marked day 10 of a new rally attempt which means the window remains open for a proper follow-through day (FTD) to emerge. All we need to see is a rally of at least +1.7% on heavier volume than the prior session to confirm a new rally. On a positive note, the major averages are in the process of tracing out a bullish double bottom (W) pattern. In early October, the S&P 500 briefly entered bear market territory defined by a decline of >20% from its recent high however the bulls quickly showed up and defended that level. The Dow Jones Industrial Average and Nasdaq composite are now positive for the year which is an encouraging sign. However, the other popular averages are still in the red 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 early-August, we told you that the major averages are trading between support and resistance of their 2-month base and until they break above resistance or below support expect this very sloppy trading range will continue. Put simply, after testing support (2011 lows), the market is now bouncing back and flirting with resistance (September’s highs) of its wide-and-loose 2.5 month base.

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Earnings Mixed & MFG Data Disappoints:

Over the weekend, the G-20 agreed to help resolve the ongoing debt woes in Greece and agreed to a large haircut (i.e. write-down) on their outstanding debt of 50%. Stocks fell after Germany, Europe’s largest economy, dampened expectations that EU leaders will reach a deal in the near future. Before Monday’s open, Citigroup (C) beat estimates but WellsFargo (WFC) missed estimates. News on the economic front was negative. The New York Fed’s Empire State index was little changed this month to negative -8.48 from negative -8.82 in September. However, this missed the Street’s estimates for a reading of negative -4.  Separately, industrial production rose +0.2% in September which matched estimates.
Market Outlook- In A Correction:
The major U.S. averages are still in a “correction” as they continue to bounce towards resistance of their 2-month base. The latest follow-through day (FTD) which began on August 23, 2011 has officially ended which means we will continue “counting” days before a new rally can be confirmed. 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! The next stop is September’s highs and then their 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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On Tap This Week:

MONDAY: Industrial production, Fed’s Lacker and Evans speak; Earnings from IBM
TUESDAY: PPI, treasury international capital, housing market index, Bernanke speaks; Earnings from BofA, Coca-Cola, Goldman Sachs, J&J, Apple, Intel, CSX and Yahoo
WEDNESDAY: Weekly mortgage apps, CPI, housing starts, Fed’s Rosengren speaks, oil inventories, Fed’s Beige Book; Earnings from Morgan Stanley, Travelers, United Tech, AmEx, Ebay, Western Digital
THURSDAY: Jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, Fed’s Bullard and Kocherlakota speak, NewsCorp investor day; Earnings from AT&T, Eli Lilly, Nokia, AutoNation, Microsoft, Capital One, Chipotle and SanDisk
FRIDAY: Fed’s Kocherlakota speaks, 2011 Dodd-Frank Rulemaking Deadline; Earnings from GE, McDonald’s, Verizon, Honeywell and Schlumberger
Source: CNBC.com