Friday, May 13, 2011
Stock Market Commentary:
Stocks and a host of commodities fell this week as the bears returned from a brief hiatus. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly. From our vantage point, the market rally remains under pressure due to the lackluster action in the major averages and several leading stocks.
Monday & Tuesday: Short-Lived Bounce
On Monday, stocks and a host of commodities bounced after a very sharp sell-off. It was encouraging to see a slew of leading stocks hold up rather well during the recent sell off: AAPL, NFLX, BIDU, PCLN, GMCR, MCP, & AMZN.
The rally continued on Tuesday after the Labor Department said overall import prices rose +2.2% in April. That was the seventh consecutive monthly gain and April’s rate eased from March’s +2.6% reading but topped the Street’s estimate for a +1.8% rise. In other news, Microsoft (MSFT) agreed to buy Skype for $8.5 billion.
Wednesday- Friday’s Action: Inflation Up; Markets Fall
On Wednesday, China said consumer prices jumped +5.3% in April (from the same period in 2010) and lending exceeded analysts’ estimates. This was the virtual “tipping point” of the week because the news prompted Beijing to raise its reserve requirements for banks. Looking forward, the news will likely prompt China’s central bank to raise rates (i.e. tighten monetary policy) to curb inflation and cool their red-hot economy. Inflation in Germany, Europe’s largest economy, also topped estimates and rose by +2.7%. Global markets fell as fear spread that Chinese demand will slow.
In other news, the U.S. trade deficit widened more than forecast in March due to surging commodity prices which eclipsed record exports. The Commerce Department said the trade deficit rose +6% to $48.2 billion, the largest since June 2010, from $45.4 billion in February
Before Thursday’s open, a slew of economic data was released. Producer prices rose 0.8% which topped the 0.6% estimate. Elsewhere, retail sales rose +0.5% which was just shy of the +0.6% estimate and suggests consumers are still having a tough time dealing with surging fuel prices. The Labor Department said jobless claims slid by –44,000 last week to 434,000. Even though jobless claims fell for the week, the four-week average rose +4,000 to 436,750 which is not ideal. Before Friday’s open, U.S. consumer prices rose +0.4%, following a +0.5% jump in March. April’s gain was inline with the Street’s expectations. Core prices which exclude food and energy rose +0.2%, up from a +0.1% increase in March. Core prices topped estimates.
Market Outlook- Rally Under Pressure
From our point of view, the market rally is under pressure which suggests caution is paramount at this stage. Looking forward, the next level of support for the major averages are their respective 50 DMA lines and resistance is their 2011 highs. The rally remains in tact as long as support holds. If you are looking for specific help navigating this market, please contact us for more information.