Daily Market Commentary

Earnings Season Begins

Tuesday, October 11, 2011
Stock Market Commentary:

Stocks were quiet on Monday as investors awaited Alcoa (AA) to kick off Q3 earnings season and Slovakia to vote on enhancing the European bailout fund. Tuesday marked day 6 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 (shown above). 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. Conversely, all the major U.S. averages are 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 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 towards resistance (September’s highs) of its wide-and-loose 2-month base.

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Slovakia Votes & Earnings Season Begins:

Stocks were quiet on Tuesday as investors waited for Slovakia to vote on enhancing the EU bailout fund and for Q3 earnings season to begin. Slovakia is the only country that has not ratified the enhanced European bailout fund. The consensus is that Greece will receive its next rescue loan in early November. We find it very interesting to see everyone focus on Greece when that does not even address the larger problem- that the other PIIGS are broke. After Tuesday’s close, Alcoa Inc. (AA) kicked off earnings season and as always it will be interesting to see how stocks react to the news. Stocks have enjoyed huge gains over the past week so many people are concerned that this will be another classic case of buy the rumor and sell the news.

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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