Friday, April 15, 2011
Stock Market Commentary:
Stocks ended lower this week which put pressure on the current rally as the major averages are fighting to stay above their respective 50 DMA lines. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines in heavy trade. However, the correction was short lived when a new rally was confirmed on Thursday March 24, 2011′s healthy action. Since then, the action remains healthy which suggests the bulls are back in control of this market.
Monday-Wednesday’s Action: 50 DMA Line Is Violated
Over the weekend, rumors spread that Libyan dictator Qaddafi accepted a peace treaty that would end the two-month civil war that has crippled the North African country. Goldman Sachs (GS) also released a report that suggested locking in profits in several overbought commodities. Both factors put pressure on a slew of commodities. WTI crude oil hit a 2.5 year high earlier this month when it vaulted above $113/barrel. The last time oil surged that high was in the summer of 2008 which directly preceded the fall of Lehman Brothers and the Great Recession.It is important to remain cognizant of the fact that high energy prices acts as an indirect tax on both consumers and businesses which is a bane for the global recovery. Therefore, it is imperative to closely monitor the sensitive relationship between oil prices and economic growth. In other news, Q1 earnings season has officially begun which will likely dictate the near term action for the major averages. Remember, for an objective view of Q1 earnings, we tend to focus on how the major averages and individual stocks react to the numbers, not just the numbers.
On Tuesday, stocks fell after Alcoa Inc. (AA) reported slightly disappointing Q1 results. On another front, earnings season officially began and investors appear to be “buying the rumor and selling the news.” Stocks rallied over the past few weeks (buy the rumor) in anticipation of Q1 earnings and now that we are here, equities are under modest pressure (sell the news) as companies begin to report their numbers in droves.
Before Wednesday’s opening bell, JPM reported stronger than expected Q1 results which helped the market open higher. However, earnings fell short of the so-called whisper number which dragged shares lower by the end of the day. On the economic front, retail sales rose nicely in March due to higher gasoline prices. As expected, higher energy prices hurt auto sales. However, overall retail sales rose +0.4% in March, following a revised +1.1% gain in February. It should be noted that the March figure fell short of the Street’s estimate for a +0.5%gain. President Obama gave a speech which outlined his plan to tackle the country’s onerous debt levels. Elsewhere, the Fed’s Beige Book was released which showed moderate economic growth in much of the country.