SPX- New trading range continues

Thursday, November 10, 2011
Stock Market Commentary:

The S&P 500 and Nasdaq Composite are back in negative territory for the year after fresh concern spread regarding Italy’s debt woes earlier in the week. From our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). Finally, others are starting to take notice of this important question. Our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly, not stand in the way of them.  Stocks confirmed their latest rally attempt on Tuesday (10.18.11) day 12 of their rally attempt when the SPX 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 and the current rally is under pressure. That said, one can err on the bullish side as long as the major averages remain above their 50 DMA lines.

Italian Bond Yields Drop & U.S. Economic Data Does Not Disappoint:

Stocks rallied on Thursday after the yield on Italian debt fell below the critical 7%level and economic data in the U.S. did not disappoint. The Labor Department said jobless claims fell10,000 to a seasonally adjusted 390,000 last week. Not only did the number of jobless claims fall (which bodes well for the the monthly payrolls report and the broader economy) but it also fell below the closely watched 400,000 mark and was the lowest reading since the first week of April! Elsewhere, the Commerce Department said the U.S. trade deficit unexpectedly fell to $43.1 billion in September to its narrowest level since December. This topped the Street’s estimate of $46 billion.

Market Outlook- Rally Under Pressure:

The current rally is under pressure due to the recent sell off which sent the SPX below 1230 and erased half of October’s gains. This means that caution is king until the bulls regain control of this market. In addition, it is important to note that the bulls failed to send the major averages above their respective 200 DMA lines and the neckline of their ominous head-and-shoulders top pattern (1250) in late October. Therefore, we have to expect this sloppy wide and loose action to continue until the market closes above its longer term 200 DMA line. 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, feel free to contact us for more information. That’s what we are here for!