Market Not Following Through, But Falling Through

June 2010
Stock Market Commentary:

Before we address the current market outlook, it is important to step back and put the recent action in proper context. Since the March 2009 bottom, the major averages have experienced explosive gains on the simple premise that the global economic recovery will be robust. That notion helped the benchmark S&P 500 Index rally +83% before reaching a near-term top of 1,219. Since then, notions of a robust recovery have come into question, especially due to the ominous debt levels in several European nations and Beijing’s various attempts to curb its red-hot economy. The euro, which has also enjoyed healthy gains since March 2009, topped out in December 2009 and has steadily fallen during the first half of 2010. Looking ahead, it is imperative to monitor the direction the euro is heading in order to better gauge investors’ world-wide collective appetite for risk.

Stocks Fall Hard During The Second Quarter of 2010:

It was a brutal quarter on Wall Street. The Nasdaq Composite and the benchmark S&P 500 Index both fell -12%, meanwhile, the Dow Jones Industrial Average and the small cap Russell 2000 Index skidded –10% to their worst quarterly performances since Q4 2008. It was the Nasdaq’s worst Q2 since 2002. For the year, the Nasdaq Composite is down -7%, the S&P 500 Index is -7.8%, and the Dow Jones Industrial Average is -6%. In addition, it was worrisome to see the S&P 500 Index close below the 1,040 which has served as formidable support for most of the year.
Bullish Case:

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