Monday, May 24, 2010
Stock Market Commentary:

The major averages ended lower as the dollar rallied after European debt woes continued to spread. As expected volume was lighter compared to Friday’s heavy options expiration levels. Decliners led advancers by more than a 23-to-15 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. New 52-week lows outnumbered new 52-week highs on the Nasdaq but trailed on the NYSE. Leadership was narrow on Monday as there were only 4 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the 0 issues that appeared on Friday. It is difficult for the market to rally without a healthy crop of strong leaders.

Spanish Bank Fails:

Fresh contagion woes spread after Spain said it stepped in to save one of its largest banks. The Bank of Spain put CajaSur, a large Spanish bank, under a provisional administrator after the bank lost 596 million euros ($739 million) on 426 million euros in revenue last year. This sent a slew of financial shares lower across the globe as investors were concerned that more banks will fail. 

Existing Home Sales Rise; But Housing Stocks Fall:

In the US, the National Association of Realtors said sales of existing homes (i.e. previously owned homes) rose in April to the highest level in five months. The report said buyers scrambled to buy the homes before the government’s tax credit expired. Sales increased +7.6% to a 5.77 million annual rate. This was the highest reading since November 2009 which was the month the incentive was first due to expire. Initially, housing stocks rallied on the news but the bears quickly showed up and quelled the bulls’ efforts.

Market Action- In A Correction:

Monday marked Day 2 of a new rally attempt which means that as long as Friday’s (Day 1) lows are not breached, the earliest a possible FTD could emerge would be this Wednesday (Day 4). However, if at anytime, Friday’s lows are breached, then the day count will be reset. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.