Monday, April 11, 2011
Stock Market Commentary:
Stocks opened higher as first quarter earnings season officially began and crude oil fell over -3% after Libyan dictator Qaddafi was rumored to have accepted a peace treaty. It is encouraging to see a slew of leading stocks and the benchmark S&P 500, Dow Jones Industrial Average, Nasdaq composite, and small cap Russell 2000 index all close and stay above their respective 50 DMA lines since late March. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines in heavy trade. However, the correction was short lived when a new rally was confirmed on Thursday March 24, 2011′s healthy action. Since then, the action remains healthy which suggests the bulls are back in control of this market.
Oil Down & Earnings Season Begins:
Over the weekend, rumors spread that Libyan dictator Qaddafi accepted a peace treaty that would end the two-month civil war that has crippled the North African country. Surging energy prices are perhaps the largest threat to the ongoing economic recovery. WTI crude oil hit a 2.5 year high last week when it vaulted above $113/barrel. The last time oil surged that high was in the summer of 2008 which directly preceded the fall of Lehman Brothers and the Great Recession. It is important to remain cognizant of the fact that high energy prices acts as an indirect tax on both consumers and businesses which is a bane for the global recovery. Therefore, it is imperative to closely monitor the sensitive relationship between oil and stocks. In other news, Q1 earnings season has officially begun which will likely dictate the near term action for the major averages. Remember, for an objective view of Q1 earnings, we tend to focus on how the major averages and individual stocks react to the numbers and not just the earnings themselves.
Market Action- Rally Under Pressure
The current rally which began with the Thursday, March 24, 2011 FTD is now under pressure as the Nasdaq 100 sliced below its respective 50 DMA lines. Remaining objective, it is bullish to see the other popular averages all trading above their respective 50 DMA lines. However, if that important level is breached, then lower, not higher prices, likely lie ahead. If you are looking for specific help navigating this market, please contact us for more information.