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.
The technical action in the major averages continues to weaken. Currently, resistance for the Dow Jones Industrial Average and the benchmark S&P 500 index is their respective 200 DMA lines, while the Nasdaq composite faces resistance at its 50 DMA line. It is also disconcerting to see the action in several leading stocks remain questionable at best evidenced by the dearth of high ranked leaders breaking out of sound bases. Thursday’s action wiped out the gains enjoyed earlier in the week for the major averages which emphasizes the importance of remaining cautious until the rally is back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
Market Action- Confirmed Rally:
So far, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been very strong and stocks are simply pausing to consolidate their recent gains. It was encouraging to see the bulls show up and defend support (formerly resistance) in recent weeks. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. Trade accordingly.
Friday, December 07, 2012 Stock Market Commentary: The major averages placed a near term low on Friday, November 16, 2012 (Day 1 of the current rally attempt) after politicians hinted that a deal would get done for the fiscal cliff. If November’s lows (SPX 1343) are taken out, then odds favor lower, not higher prices, will…
Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market appears to be placing an interim top here as the major averages consolidate their recent move. The S&P 500 sliced below its two month upward trendline (shown above) which is not a healthy sign. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. We have enjoyed large gains since the September 1st FTD and for the first time, the tape is getting sloppy. Trade accordingly.
The benchmark S&P 500 Index marked Day 14 of its current rally attempt and is currently encountering resistance just below its 200 DMA line. The Dow Jones Industrial Average marked Day 5 of its latest rally attempt while the Nasdaq Composite marked Day 3. At this point, the window is now open for the major averages to produce a sound follow-through day (FTD) until the recent lows are breached. Furthermore, it is well known that a market should not be considered “healthy” unless it trades above its rising 200-day moving average (DMA) line. The fact that all the major averages are below both their 50 & 200 DMA lines bodes poorly for the near term. That said, the bears will likely remain in control until the popular averages close above their important moving averages. Trade accordingly.
STOCK MARKET COMMENTARY: FRIDAY, NOVEMBER 29, 2013 Stocks enjoyed their 8th consecutive week as the major averages continue to march higher. As we have mentioned several times recently, in the short-term the market is extended and a light volume pullback would do wonders to restore the health of this rally. The market negatively reversed (opened…
