Weak Economic Data Drags Stocks Lower

Monday, August 30, 2010
Stock Market Commentary

The major averages fell and treasuries rallied after American personal income trailed estimates which sparked concern the economic recovery may be waning. Monday’s volume totals ended lower on the NYSE and the Nasdaq exchange compared to Friday’s levels which suggested that large institutions were not aggressively selling stocks. Decliners trumped advancers by a 3-to-1 ratio on the NYSE and by nearly a 4-to-1 ratio on the Nasdaq exchange. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows on the Nasdaq exchange. There were 19 high-ranked companies from the CANSLIM.net Leaders List made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 21 issues that appeared on the prior session.

Tepid Economic Data Weighs On Stocks:

Before Monday’s open, the Commerce Department said disposable incomes, or the money left over after taxes, missed estimates while consumer spending rose +0.4%, matching estimates. Monday’s “miss” was the latest in a series of economic data that suggests the slowing jobs market is adversely affecting the economic recovery. Elsewhere, it was encouraging to see the M&A market remain somewhat active. Intel (INTC -2.23%), the world’s largest chip manufacturer, fell after agreeing to buy Infineon Technologies AG’s wireless unit for about $1.4 billion. Meanwhile, 3Par (PAR -1.97%) slid after HP (HPQ +1.47%) raised their bid to buy the company. 

Market Action- In  A Correction

Monday marked Day 2 of a new rally attempt which means the earliest a possible follow-through day (FTD) could emerge will be Wednesday. However, if at anytime, Friday’s lows (Day 1) are breached then the day count will be reset. The technical action in the major averages has recently been weak while the latest round of economic data has provided a poor outlook for the market and the global recovery. Currently, resistance for the the major averages are their 50-day moving average (DMA) lines, then their longer-term 200 DMA lines while support remains July’s lows. It is also disconcerting to see weakness in the financial group. Meanwhile, the action in leading stocks and fact that some high-ranked leaders are breaking out of sound bases can be considered somewhat encouraging. Still there is importance in remaining cautious until the major averages are back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support. The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
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