Stocks and a slew of other “riskon” assets bounced from deeply oversold levels as hope spread that another round of global monetary easing will curb the economic slowdown across the globe. In early May, all the major averages sliced below their respective 50 DMA lines which prompted us to label this market “in a correction.” For the past few weeks, we have written about the importance of being defensive especially because the action in the major averages and a slew of leading stocks deteriorated. After the sharp fall, the bulls showed up and are doing their best to defend the longer term 200 DMA lines for the major averages. If that level is “broken” on a closing basis- then we have to expect another leg lower to begin.
Stocks rallied on Monday erasing earlier losses and marked Day 1 of a new rally attempt. Stocks looked passed a lackluster non-manufacturing PMI reading from China and were hopeful that the EU crisis was not deteriorating further. The CRB Commodity Index managed to snap a four day losing streak which also helped stocks rally. The euro, which is a great barometer for “riskon” assets, also rallied from deeply oversold levels which paved the way for a “riskon” day.
Stocks rallied on Tuesday after the latest round of economic data was mixed. European retail sales slid but non-manufacturing PMI improved marginally. Finance ministers from the G7 held an emergency teleconference but failed to come up with any ground breaking solutions. The latest ISM Services Index rose to 53.7 in May from 53.5 in April. Moody’s one of the popular rating agencies, slashed the ratings on several European banks.
Stocks extended their gains on Wednesday after the ECB held rates steady at 1% and optimism spread. The ECB held its key interest rate unchanged at 1% which matched expectations. ECB President Mario Draghi said the central bank will do its best to curb inflation but added that inflation pressures remain subdued. Draghi also said the ECB expects inflation should remain above 2% for the rest of 2012 and then fall to 1-2% in 2013.
Thursday & Friday’s Action- Stocks Slide As Enthusiasm Wanes:
Before Thursday’s open, China lowered their interest rates by 25 basis points to 6.31% to help boost their “sagging economy.” The PBC move was not expected and helped send a slew of risk assets higher. Janet Yellen, the vice chair of the Fed, gave a speech in Boston where she made a case for another round of monetary easing to protect and stimulate the US economy from the impact of the euro zone debt crisis. After the open, Bernanke testified before the Congressional Joint Economic Committee and reiterated his recent stance regarding continued “downside” risks to the economy and capital markets. In European news, Spain has not yet requested assistance from the ECB and has resisted being placed under international supervision. However, Reuters reported that both German and European Union officials are urgently searching for solutions to their onerous debt problems. Stocks sold off in the final hour after the U.S. Fed boosted capital requirements for several of the country’s largest banks. Stocks rallied on Friday as enthusiasm regarding the global economy improved.
Market Outlook- Market In A Correction
From our point of view, the market is back in a correction now that all the major averages closed below their respective 50 DMA lines and downward trendlines. Since the beginning of May, we have urged caution as the major averages and a host of commodities began selling off. The next level of resistance is their respective 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.
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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.
Monday, April 09, 2012 Stock Market Commentary: Stocks and other risk assets fell on Monday in the wake of Friday’s disappointing jobs report and after inflation topped estimates in China. Technically, this long overdue correction is upon us and the key going forward is to measure the health of this pullback. Ideally, one would like…
Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. It was encouraging to see a flurry of high-ranked leaders trigger fresh technical buy signals and break out of sound bases in recent sessions. The next important level to watch for the major averages are their respective 200-day moving average (DMA) lines. It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly
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…
Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market action has been wide-and-loose which is not a healthy sign. The next level of support for the major averages is their October highs (SPX 1190-1195), then their respective 50-day moving average (DMA) lines. Trade accordingly.
