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.
Weak Jobs Report: Good For Wall Street, Not Main Street Last week was a very big and important week on Wall Street! Stocks opened lower but closed higher for the week after the S&P 500 and Russell 2000 “tested” Aug’s low. Aug’s low for the S&P 500 was 1867 and last week’s low was 1871….
Market Outlook- Market In A Correction
The latest action in the major averages suggests the market is back in a correction as all the major averages remain below key technical levels. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests caution is paramount at this stage until all the major averages rally back towards their respective 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.
Stock Market Analysis?
Global Macro Research?
Learn How To Follow Trends!
Looking at the market, the Dow Jones Industrial Average and benchmark S&P 500 index both closed near their respective resistance levels as they quietly consolidate their recent gains in lighter pre-holiday volume. Meanwhile, the tech-heavy Nasdaq composite continues to lead its peers as it managed to hit another 2009 high on Wednesday.
Remember that the S&P 500 plunged -58% from its all time high in October 2007 of 1,576 to its March 2009 low of 666. Since then, the market has rebounded over +65% but still remains -29% below its all-time high of 1,576. In addition, the index has retraced nearly -50% (455 points) of its decline (910 points) which is a popular Fibonacci level used by many technical analysts. Normally, markets rebound approximately 50% before resuming their prior trend (which would be down in this case). Longstanding readers of this column know that we do not predict the future. Instead, we remain open to any possible scenario that may unfold and interpret what we see happening by remaining objective and carefully analyzing the tape (price and volume) each day.
The Bulls Are In Control 05.30.14 The bulls emerged victorious on the shortened holiday week after quelling the bearish pressure and sending the benchmark S&P 500 (SPX) to a fresh record high. Earlier this year, we wrote about how the market was in the process of building a large top and noted that we needed the…
Wednesday, February 22, 2012 Stock Market Commentary: Stocks and a slew of other risk assets were flat to relatively lower on Wednesday after the enthusiasm wore off regarding the second bailout for Greece and China’s manufacturing sector contracted for the fourth consecutive month. The primary catalysts for the risk on trade was the ECB relief long term…
Tuesday, February 14, 2012 Stock Market Commentary: Stocks and a slew of other risk assets opened higher on Monday after the Greek parliament approved the closely contested austerity measures for their second bailout. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their…
