All The Major Averages Below 50 DMA line; Leaders Smacked In Heavy Volume

Nasdaq Slices Below 50 DMA

Nasdaq Slices Below 50 DMA

Monday, April 16, 2012
Stock Market Commentary:

Stocks and other risk assets were mixed on Monday but a slew of leading stocks were smacked in heavy volume. So far the reaction to Q1 earnings has been less than stellar. As earnings continue to be released in droves, it is paramount that we not only pay attention to the actual numbers but how the stocks (and major averages) react to the numbers.  This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price action The fact that the Nasdaq composite, benchmark S&P 500, Dow Jones Industrial Average, and Small Cap Russell 2000 are all below their respective 50 DMA lines is not ideal and suggests caution is king at this juncture.

Economic Data Not Ideal & Leaders Smacked In Heavy Volume:

The major averages ended mixed on Monday as investors digested the latest round of tepid economic data. However, the real news was the fact that a slew of leaders were smacked in heavy volume! Apple (AAPL), (PCLN), and (GOOG) were among of the few of the leaders that were smacked in heavy trade. Economic data also failed to impress. Homebuilder sentiment plunged in March which put pressure on a slew of housing stocks and the ailing housing market. New York Manufacturing activity collapsed to 6.56 in April from 20.21 in March. This also missed the Street’s estimate of 18. On a bright note, retail sales rose +0.8% which topped the average estimate for a gain of +0.3%.

Market Outlook- In A Correction

From our point of view, now that all the major averages are below their respective 50 DMA lines suggests the bears are getting stronger. Remember, it is quite normal to see markets pullback to digest their latest move but from a risk/reward standpoint, being heavily long when all of the popular  averages are below their respective 50 DMA lines does not offer an optimal risk/reward level. However, once these major averages get back their respective 50 DMA lines, then one can easily return to the long side. 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!

Please Note:
Due to time constraints, this commentary will become a weekly note starting May 1, 2012. 
We would like to thank you for your continued support and patronage!