Friday, May 11, 2012
Stock Market Commentary:

Stocks and a slew of other “risk assets” fell for a second straight week after the latest round of economic and earnings data suggests the global economy is slowing, not growing. Now that we are in the latter half of earnings season, the reaction by the major averages has been less than stellar. Remember, we not only focus on the actual numbers but how the major averages (and individual stocks) react to the numbers. This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price action. So far the action is not ideal. We find it worrisome to see all the major averages fall below their respective 50 DMA lines again.

Monday-Wednesday’s Action- Stocks Tank On Fresh EU Woes:

Stocks were flat on Monday as investors digested two important elections in France & Greece over the weekend. The larger and more important election was in France where socialist candidate Francois Hollande won the second round of French Presidential elections. Greek voters were all over the map, rejecting the status quo and not giving a majority to any one party. Greece’s finances are still a mess as the public remains fragmented and the country is still taking bailout money.  Risk assets fell on Tuesday as fresh concern spread regarding the health and sustainability of the Eurozone. Rumors spread that Greece will be forced to leave the Eurozone as the nation continues to tackle its ongoing debt crisis. Gold plunged below several critical technical areas of support on the news, most important its multi-year upward trendline. Stocks fell again on Wednesday after yields on Spanish debt topped 6% which is not ideal. A slew of European stocks were smacked as concern spread regarding the health and sustainability of the euro.

Thursday & Friday’s Action: Stronger Consumer Confidence Offsets JPM $2B Snafu

Stocks rallied on Thursday and Friday as Eurozone fears eased and consumer sentiment in the U.S. surged to the highest level since January 2008! On Thursday, hope spread that Greece would manage to put together a government that would help them stay in the Eurozone. Investors were also happy to see the latest round of decent economic data be released from the U.S. Before Thursday’s open, the Labor Department said weekly jobless claims fell by 1,000 which does not particularly bode well for ailing jobs market. A separate report showed that the trade deficit widened in March, due in part to higher oil prices and a slew of Chinese goods outweighing record exports. After Thursday’s close JP Morgan (JPM) reported a surprise $2B loss for the second quarter due to poor risk management from the Chief Investment Office. One of the most important lessons we learned from the entire 2008 financial meltdown was that nothing is rock solid, not JPM or  even governments! Stocks rallied on Friday after consumer confidence surged to the highest level since January 2008! A separate report showed that the producer price index (PPI) matched estimates which helped allay inflation woes.

Market Outlook- In A Correction

From our point of view, the market is back in a correction now that the Dow Jones Industrial Average, S&P 500, Nasdaq composite, Nasdaq 100, and the Russell 2000 are back below their respective 50 DMA lines. April’s lows were breached but the bulls are fighting to defend that level. The next level of support is March’s lows and then the 200 DMA lines. As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!