Wednesday, June 08, 2011
Stock Market Commentary:
Stocks and a slew of commodities were quiet on Wednesday as the world digested Bernanke’s latest speech and the Fed’s Beige Book. Remember, it is quite normal to see markets “bounce” after a steep move in one direction. Going forward the key is to study the “bounce” and wait for a powerful up day to confirm a new rally attempt. Ideally, that day will occur when the major averages are back above their respective 50 DMA lines. Until then, the bears remain in control of this market. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly as all the major averages and a slew of key commodities are down significantly from their May 2nd highs.
World Bank Reduces Growth Forecast & Fed Beige Book:
On Wednesday, stocks were quiet as investors digested Bernanke’s speech and the latest round of economic data. The World Bank lowered its global gross domestic product (GDP) outlook and said the global economy may grow by +3.2% this year which was lower than their latest forecast of +3.3% in January. Elsewhere, German industrial production unexpectedly fell for the first time in four months in April which is the latest in a series of disappointing economic data. Just after 2pm EST, the Fed released its Beige Book and said economic growth was softening in some areas of the country. The report showed 4 out of the 12 districts in the U.S. are growing at a slower pace. In other news, Fitch rating agency put U.S. treasuries on a negative watch and said they could be rated “junk” in August.
Market Outlook- Market In A Correction:
From our point of view, the market is back in a correction now that all the major averages closed below their respective 50 DMA lines and important upward trendlines. Since the beginning of May, we have urged our clients and readers to be extremely cautious as the major averages and a host of commodities began selling off.
For those of you that are interested, the S&P 500 hit a new 2011 high on May 2, 2011. Two days later, on Wednesday, May 4, 2011, we turned cautious and said “The Rally Was Under Pressure” (read here). Then on Monday, 5.23.11, we changed our outlook to “Market In A Correction” (read here). On Monday June 6, 2011 we pointed out that the S&P 500 violated its 9-month upward trendline (read here) and reiterated our cautious stance. We have received a lot of “thank you” emails for being “spot on” in our cautious approach. We are humbled by your presence and very thankful for your continued support. Looking forward, the next level of resistance for the major averages is their respective 50 DMA lines then their 2011 highs. The next level of support is their longer term 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.