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.” Then in early June the bulls showed up and defend the 200 DMA lines for the major averages. On Friday, the bulls managed send the benchmark S&P 500 index above the neckline of its bullish inverse head and shoulders pattern (shown above). The next level of resistance is the 50 DMA line and then 2012’s highs.
Monday-Wednesday’s Action- Bad News is “Good” News:
Stocks opened higher but closed lower on Monday as enthusiasm waned regarding Spain’s $125 billion bailout. The best headline I came across was one saying, “Spain Got Tarped.” The details of the plan were not ideal and showed EU leaders just throwing more debt at a debt crisis. After the initial and expected at the open on Monday, stocks fell hard and closed near their lows of the day as investors focused on the upcoming elections in Greece and Italy’s onerous debt burden.
Stocks ended with modest gains on Tuesday but volume, a critical component of institutional activity, was lighter than Monday, as investors looked passed Spain’s woes and focused on hopes that the recent spate of “bad” news will force the Fed’s hand into another round of QE when they meet next week. Cyprus, the third smallest country in the eurozone, sports a tiny population of under 1 million, and its economy only accounts for +0.2% of eurozone GDP asked for a bailout. Yields on Spanish and Italian debt jumped on the news.
The major averages ended lower on Wednesday as sellers showed up and sent stocks lower before the close. The economic data in the U.S. was less than stellar. Retail sales fell -0.2% in May which exceeded the Street’s estimate for a decline of -0.1%. Elsewhere, producer prices missed estimates, falling -1% in May while core prices met estimates, rising +0.2%.
Thursday & Friday’s Action- Fed, ECB, Someone Save Us:
Stocks enjoyed nice gains on Thursday after global Central Banks stepped up and said they are willing to act if the Greek elections spook markets. The Labor Department said weekly jobless claims to rose to 386,000 from 380,000 which topped the Street’s estimate for 375,000. Overall consumer prices slid by -0.3%in May which topped the Street’s estimate for a decline of –0.2%. Core prices rose by +0.2% which topped the Street’s estimate for a gain of +0.1%. The government said, for the first quarter the current deficit data totaled $137.3billion, which is greater than the $130.9 billion deficit that had been anticipated. Again, stocks rallied on hopes that “bad” data will force the Fed’s (and other central bank’s) hand. Stocks rallied on Friday after the latest round of economic data was released. The data suggested that the US economy is “slowing” which investors are hoping will force the Fed’s hand at their next meeting later this month.
Market Outlook- In A Correction
From our point of view, the market is back in a correction now that all the major averages are back below their respective 50 DMA lines. Looking forward, we want to see a powerful accumulation day to confirm the latest rally attempt. Technically, the 200 DMA line and June’s lows are the next level of support while the 50 DMA line is the next level of resistance for the major averages. 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!
Wednesday, March 14, 2012 Stock Market Commentary: Stocks opened higher on Wednesday, led by the explosive post Stress-test results from the country’s largest banks. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. Since then, stocks have been enjoying…
Stocks Pullback On Shortened Holiday Week Stocks fell last week causing the S&P 500 to pullback to its 50 DMA line and the small cap Russell 2000 to negate its latest breakout. Energy prices continued to implode last week as sellers remain in clear control. Separately, the US dollar soared to a 9 year high…
Wednesday, February 29, 2012 Stock Market Commentary: Stocks and a slew of other risk assets rallied in February which helped Wall Street enjoy another positive month. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. Since then, stocks have…
It is well known that a market should not be considered “healthy” unless it trades above its rising 200-day moving average (DMA) line. The fact that all the major averages are below both their 50 & 200 DMA lines bodes poorly for the near term. That said, the bears will likely remain in control until the popular averages close above their important moving averages and the euro catches a bid.
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 September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. Trade accordingly.
Market Outlook- Market In A Correction
The latest action in the major averages suggests the market is back in a correction as all the major averages remain below key technical levels. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests caution is paramount at this stage until all the major averages rally back towards their respective 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.
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