Wednesday, September 21, 2011
Stock Market Commentary:

Stocks digested a slew of headlines from across the globe on Wednesday as the Fed concluded their much anticipated two-day meeting. The major averages continued trading between support and resistance of their current base but most European markets are still near their 2011 lows. At this point, the current rally is under pressure evidenced by several distribution days (heavy volume declines) since the latest FTD. It is important to note that even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.

ECB Relaxes Rules, Existing Home Sales Jump, Banks Credit Rating Cut, & Fed Decision Slams Stocks

On Wednesday, the ECB relaxed rules for eligibility requirements on debt instruments to be used by financial institutions as collateral for borrowing from the bank. Under the old rules, CNBC.com reported that “debt instruments issued by credit institutions – except covered bonds – were only eligible if they were admitted for trading on regulated markets. This requirement has now been abolished, according to a release from the ECB.”
In the U.S., the National Association of Realtors said existing home sales jumped +7.7% month over month to an annual rate of 5.03 million units. The median home price slid by -5.1% from the same period last year. Elsewhere, Moody’s cut the credit rating for Citigroup (C), Bank of America (BAC), & Wells Fargo (WFC) as concern spread that the government would not be in a position to help these banks if they needed it. At 2:23pm EST, the Federal Reserve concluded their latest meeting, held rates steady, and announced their “twist” program. The Fed will be $400 billion by June 2012 in an effort to make credit less expensive and stimulate spending and investment. In an effort to keep mortgage rates low, the Fed also said it would reinvest the proceeds from maturing agency debt and mortgage-backed securities into mortgage-related debt. The Fed also said downside economic pressure remains a concern.

Market Outlook- Rally Under Pressure:

The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when several distribution days emerge or August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.