Stocks Pullback To Digest Tuesday's Strong Move

Byinfo@50park.com
INDU- Fighting To Stay Above 50 DMA Line
INDU- Fighting To Stay Above 50 DMA Line

Wednesday, April 18, 2012
Stock Market Commentary:

Stocks and other risk assets were mostly lower on Wednesday as investors digested Tuesday’s strong move and the latest round of mixed earnings data. As earnings continue to be released in droves, it is paramount that we not only pay attention to the actual numbers but how the stocks (and major averages) 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. The Nasdaq composite, Dow Jones Industrial Average, and the benchmark S&P 500 index are all back above their respective 50 DMA lines which bodes well for the bulls. The small-cap Russell 2000 index is still below that closely followed level.

Spanish Debt Woes and Earnings Hurt Stocks:

Stocks fell on Wednesday as fresh concerns spread about Spain’s onerous debt levels. In other European news, minutes from the Bank of England showed that only one Monetary Policy Committee member still supported quantitative easing which squashed hopes of anther round of QE. ECB policymaker Jens Weidmann told Reuters that Spain should take care of its own debt woes and ruled out a third long-term financing operation (LTRO) from the ECB. In a surprise OP-ED, Portugal’s prime minister wrote in the Financial Times that the country may not return to capital markets for funds in 2013, as previously expected. Earnings disappointments from IBM and Intel (INTC) also weighed on stocks.

Market Outlook- In A Correction

From our point of view, the market is getting stronger now that several of the major averages are fighting to get back above their respective 50 DMA lines. Looking forward, that level should now become support. Therefore, probing the long side with close protective stops (below the 50 DMA line) might be prudent if you are looking for a low risk entry point. 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!
 

Please Note:
After nearly 10 years of writing daily market reports we are Due to time constraints, this commentary will become a weekly note starting May 1, 2012.  
We would like to thank you for your continued support and patronage!

Similar Posts

  • Day 1 Of A New Rally Attempt

    Byinfo@50park.com

    Wednesday marked Day 1 of a new rally attempt which means that the earliest a possible follow-through day (FTD) could emerge will be Monday. However, if at anytime, Wednesday’s lows are breached then the day count will be reset. The technical action in the major averages and the latest round of economic data bodes poorly for the market and the global recovery. Currently, resistance for the the major averages are their 50 DMA lines, then their longer term 200 DMA lines while support remains July’s lows. It is also disconcerting to see the action in several leading stocks remain questionable as evidenced by the dearth of high-ranked leaders breaking out of sound bases. Monday’s negatively reversal coupled with Tuesday’s ugly distribution day effectively ended the latest rally attempt. This 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. The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.

  • Rally Attempt Ends As Stocks Negatively Reverse

    Byinfo@50park.com

    Looking at the market, Tuesday’s ominous action effectively ended the current rally attempt and suggests a steeper correction may unfold. It is also important to see how the major averages react to their respective 50 DMA lines. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is paramount.

  • Relatively Flat Week on Wall Street

    Byinfo@50park.com

    The action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been very strong. Looking forward, the window is open for disciplined investors to carefully buy high-ranked stocks, while many pundits are expecting that markets may consolidate following 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 respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. Trade accordingly.