Resistance Should Become Support

Monday, October 24, 2011
Stock Market Commentary:

Stocks rallied on Monday as investors digested the latest round of earnings and M&A news. Stocks confirmed their latest rally attempt on Tuesday (10.18.11) day 12 of their rally attempt when the S&P 500 and NYSE composite scored proper follow-through days (FTD).  It is important to note that every major rally in history began with a FTD but not every FTD leads to a new rally. That said, one can err on the bullish side as long as the major averages remain above their 50 DMA lines. The next important area of resistance is their September highs and then their 200 DMA lines. We would be remiss not to note that 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. However, it is “encouraging” to see U.S. stocks outperform these markets which is a sign of strength.
Another Lackluster EU Meeting, Earnings Top Estimates & M&A News Lifts Stocks!
Over the weekend, EU leaders kicked the can down the road and reschedule yet another meeting on Wednesday to tackle their onerous debt levels. Elsewhere, shares of Catepillar Inc. (CAT) gapped up after topping Q3 estimates and raised their 2012 forecasts. The news on the M&A front was healthy. Shares of RightNow Technologies (RNOW) and Healthspring Inc. (HS) gapped up after agreeing to be acquired on Monday.

Market Outlook- Confirmed Rally:

The major U.S. averages are back in a new confirmed rally and broke above resistance of their 6-week base. The benchmark S&P 500 index scored a proper FTD on Tuesday, October 18, 2011, i.e. Day 12,  when it rallied over 2% on heavier volume than the prior session. The next important area of resistance is its longer term 200 DMA line. 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! 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.