Thursday, June 09, 2011
Stock Market Commentary:
Stocks and a slew of commodities bounced on Thursday as the world digested the latest round of economic data. 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 (follow-through day) to confirm a new rally attempt. Thursday marked day 1 of a new rally attempt which means as long as Thursday’s lows are not breached the earliest a new rally can be confirmed will be on Tuesday. However, if Thursday’s lows are breached, then the day count will be reset. Ideally, the FTD 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 2011 highs.

Jobless Claims Rise, U.S. Deficit Falls, & ECB Holds Rates Steady:

Before Thursday’s open, the Labor Department said U.S. jobless claims rose by 1,000 to 427,000 in the first week in June. The prior week’s reading was revised higher to 426,000. A separate report showed the U.S. trade deficit contracting in April to its lowest level of 2011. Exports jumped to a new high, thanks in part to a weaker dollar, and oil purchases plunged due to surging energy prices. The overall deficit fell -6.7% to $43.68 billion which fell short of the Street’s expectations. Elsewhere, the European Central Bank (ECB) decided to hold rates steady +1.25% for a second straight month which matched expectations. ECB President Jean-Claude Trichet said “strong vigilance” was needed to contain inflation. Many ECB pundits who like to read between the lines believe that this is Trichet’s way of hinting further rate hikes may be on the horizon.

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.

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