SPX Day 1 Of a New Rally Attempt Friday, November 16, 2012 Stock Market Commentary:
The major averages ended the week lower as they continue tracing out their 9-week downtrend (series of lower highs and lower lows) helping the bears remain in clear control of this market. It is important to note that the market is “oversold” and due for a bounce. Keep in mind that oversold markets can get a lot more oversold before they bounce. Friday marked Day 1 of a New Rally Attempt which means that the earliest a possible follow-through day could occur, to confirm this rally attempt, will be Wednesday, providing that Friday’s lows are not breached. If the lows are taken out, then odds favor lower, not higher prices, will follow and the day count will be reset. The path of least resistance is down until the major averages confirm their latest rally attempt. The pullback has now officially turned into a correction evidenced by the fact that several major averages are now more than 10% below their recent highs. So far, the reaction to earnings has been outright awful which suggests investors are not happy with the results or the implications for the future. To be clear, we expect a solution to the fiscal cliff and most likely stocks will rally on that news. If they don’t, that will be extremely bearish. Once that rally occurs we can analyze the rally but shall remain patient to see if a new uptrend emerges or if the stubborn two month downtrend continues.
On Monday, stocks opened higher but quickly turned negative as investors continued to wait for Washington D.C. to resolve the looming fiscal cliff. News from overseas was mixed to slightly better than expected. Japan said its economy contracted by -0.9% in Q3 which sparked concern that the Japanese economy will join Europe and fall into a recession in the near future. Meanwhile, China said its trade surplus topped estimates in October which was a welcomed sign. Concerns from Europe eased a bit after Greece approved its 2013 budget which was the next step for the debt-laden country to receive the next round of bailout funds. The big headline in the US occurred after Jefferies Group (JEF) agreed to be acquired by Leucadia National (LUK) for $3.7 billion. Leucadia National is a smaller version of Warren Buffett’s Berkshire Hathaway Inc (BRKA) and nicknamed “Baby Berkshire.”
Stocks opened lower but closed higher on Tuesday as optimism spread that the Fiscal Cliff will be resolved sooner rather than later. Overnight, futures were down sharply after concern spread regarding Greece’s ability to meet its debt obligations and Germany’s economy edged lower. The German ZEW economic expectations index missed estimates (for a decline of -10) and fell -15.7 in November which was worse than October’s already low reading of -11.5. Germany is the strongest economy in Europe and any weakness from them bodes poorly for the Eurozone’s ability to get out of its recession and return to growth. In other news, Christine Lagarde, Managing Director of the IMF and Jean-Claude Juncker, Chair of the Eurogroup, disagreed publicly over the deadline for Greece to lower its debt levels.
Stocks fell hard on Wednesday after President Obama held his first press conference since the election and made it clear that he wants to resolve the fiscal cliff but I felt there was not enough “urgency” in his stance. That said, I do feel as we get closer to the deadline D.C. will put together a last minute solution of some kind. Until then, uncertainty reigns supreme. October retail sales fell by -0.3% which just missed the Street’s estimate for -0.2% decline. The producer price index slid by -0.2% which was lower than the Street’s estimate for a gain of 0.1%. This bodes well for anyone that is concerned about inflation. Finally, the FOMC released the minutes of their latest meeting which showed continued concern regarding US economic growth and the jobs market.
Thursday & Friday’s Action- Stocks Continue To Slide
Before Thursday’s open, the Labor Department said weekly initial jobless claims soared to 439k which was sharply higher than the Street’s expectation for 388k. The sharp increase was due to Superstorm Sandy. The Consumer price index rose by +0.1% which matched estimates. The Empire Manufacturing Survey fell to -5.2 in November which was slightly better than October’s reading of -6.2. The Philly Fed Factory index fell to -10.7 in November which missed estimates and was lower than October’s reading of 5.7. A report from Europe showed that the eurozone fell into a second recession in three years. Stocks ended higher on Friday as investors were hopeful that D.C. will resolve the Fiscal Cliff before the deadline.
Market Outlook- Downtrend:
From our perspective, the market is in a clear downtrend and has now entered correction territory as the major averages continue to fall. On October 9, we said “the rally was under pressure” and then said the “rally was over” on Oct 19. Since then, stocks have gone straight down and a lot of technical damage has occurred. We will turn more bullish once the major averages confirm a new rally attempt and then trade back above their respective down trendlines and 50 DMA lines. As always, keep your losses small and never argue with the tape.
Market Action-Confirmed Uptrend
The market is back in a confirmed uptrend after a modest (and healthy) -6% correction from its post-recovery highs. We find it bullish to see the mid-cap S&P 400 index and the small cap Russell 2000 index both hit fresh all-time highs! In addition, the Dow Jones Industrial Average vaulted to a fresh post-recovery high and the S&P 500 and Nasdaq composite are just shy of fresh 2011 highs. Finally, we are very happy to see a slew of high ranked stocks trigger fresh technical buy signals in recent weeks which suggests higher, not lower prices lie ahead. If you are looking for specific help navigating this market, please contact us for more information.
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Market Outlook- Rally Under Pressure:
The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when several distribution days emerge or August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.
The benchmark S&P 500 Index currently has 5 distribution days while the Nasdaq Composite and Dow Jones Industrial Average have 4 since the March 1, 2010 follow-though-day (FTD). These distribution days have not been damaging, and normally it is considered healthy for the major averages to have less than 4 distribution days in a four week period. Therefore, the fact that we currently have 5 distribution days for the S&P 500 suggests a more cautious approach may be prudent. Trade accordingly.
Friday, April 20, 2012 Stock Market Commentary: Stocks ended the week mixed this week as investors digested a slew of earnings and economic data. As earnings and economic data continues to be released in droves, it is paramount that we not only pay attention to the actual numbers but how the stocks (and major averages) react to…
Stocks rallied on Thursday after healthy trade data helped offset concerns about an increase in weekly unemployment claims. Volume, an important indicator of institutional sponsorship, was mixed when compared to Wednesday’s levels; lower on the NYSE and higher on the Nasdaq exchange.
Market Outlook- Rally Under Pressure
From our point of view, the market rally is under serious pressure which suggests caution is paramount at this juncture. Looking forward, the next level of support for the major averages are their respective 50 DMA lines and resistance is their 2011 highs. The rally remains in tact as long as support holds on a closing basis. If you are looking for specific help navigating this market, please contact us for more information.
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