Daily Market Commentary

Stocks Fall As Investors Digest Economic & Earnings Data

Wednesday, October 19, 2011
Stock Market Commentary:

Stocks confirmed their latest rally attempt on Tuesday day 12 of their rally attempt when the S&P 500 and NYSE composite scored proper follow-through days (FTD).  It is important to note that every major rally in history began with a FTD but not every FTD leads to a new rally. That said, one can proceed with caution as long as the major averages remain above their 50 DMA lines. The next important area of resistance is their September highs and then their 200 DMA lines. We would be remiss not to note that several key risk assets (multiple stock markets around the world, Copper, Crude Oil, etc.) officially entered bear market territory over the in recent months which bodes poorly for U.S. stocks and the global economy.

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Earnings Mixed, EU Leaders Meet, and Economic Data Does Not Disappoint:

Stocks were relatively quiet on Wednesday as investors digested a slew of earnings and economic data. The latest round of earnings were mixed which has yet to give investors a clear “tell” on how Q3 earnings season will play out. The “big” earnings miss was from tech-giant Apple Inc. (AAPL). This was their first EPS miss since 2004 and was largely due to weaker-than-expected iPhone sales. The company sold 17m iPhones last quarter which was shy of the 20m expected on Wall Street. However, sales of their new iPhone 4s has reached record numbers which means that most people were simply waiting for the new iPhone 4s to come out before upgrading their phone, not that the iPhone has fallen from grace. In other news, an informal meeting between French President Nicolas Sarkozy, Germany’s Angela Merkel, ECB president Jean-Claude Trichet and IMF chief Christine LaGarde will be held ahead of this weekend’s much-anticipated EU summit in Brussels.

Economic news was relatively positive in the U.S.. The Commerce Department said housing starts jumped by +15% in September to a seasonally-adjusted rate of 658,000 units which was the fastest annual rate in 17 months and easily topped the Street’s estimate for 590,000. Elsewhere, the consumer price index (CPI) did not spark inflation woes. The consumer price index in September rose +0.3% which matched estimates. Meanwhile, core prices which exclude food and energy, rose by +0.1% which fell short of the Street’s estimate for +0.2%. Finally, the Fed’s Beige Book was released which caused mild selling on Wall Street.

Market Outlook- Confirmed Rally:

The major U.S. averages are back in a new confirmed rally and are flirting with resistance of their current 2.5 month base. The benchmark S&P 500 index scored a proper FTD on Tuesday, October 18, 2011 when it rallied over 2% on heavier volume than the prior session. The next important area of resistance is September’s highs and then the 200 DMA line. In addition, it is important to note that the bulls scored a victory since many of the major averages closed above their downward sloping 50 DMA lines for the first time since late July! Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. If you are looking for specific help navigating this market, please contact us for more information.

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On Tap This Week:
WEDNESDAY: Weekly mortgage apps, CPI, housing starts, Fed’s Rosengren speaks, oil inventories, Fed’s Beige Book; Earnings from Morgan Stanley, Travelers, United Tech, AmEx, Ebay, Western Digital

: Jobless claims, existing home sales, Philadelphia Fed survey, leading indicators, Fed’s Bullard and Kocherlakota speak, NewsCorp investor day; Earnings from AT&T, Eli Lilly, Nokia, AutoNation, Microsoft, Capital One, Chipotle and SanDisk

: Fed’s Kocherlakota speaks, 2011 Dodd-Frank Rulemaking Deadline; Earnings from GE, McDonald’s, Verizon, Honeywell and Schlumberger
Source: CNBC.com