Monday, July 18, 2011
Stock Market Commentary:
Stocks were smacked on Monday as debt woes continued to mount and fears spread that the global economy may continue to slow. It is important to note that all the major averages violated their respective 50 DMA lines on Monday which suggests the current rally may be in its final stages. Looking forward, the next level of support are the 2011 lows/the 200 DMA lines and the next level of resistance are the 2011 highs.
Debt Woes Mount, Home Builders’ Confidence Rises, and Earnings Season Continues!
On Monday, Treasury Secretary Timothy Geithner made it abundantly clear that if the U.S. were to default on its debt, the ramifications would be catastrophic. Over the weekend, U.S. lawmakers failed to reach a deal which caused investors to focus more on the August 2, 2011 deadline. U.S. economic data was light on Monday, home builders’ confidence rose slightly and topped estimates but remains weak from a historical perspective.
The recent soft patch in the economy led Goldman Sachs (GS) to lower its forecast for real U.S. economic growth to +1.5% in the second quarter and +2.5% in Q3, down from +2% and +3.25%, respectively. All our anecdotal evidence points to a strong summer holiday season across the East Coast of the U.S. and Canada which, barring some unforeseen event, should bode well for Q3 GDP. It will be interesting to see if the economy does indeed slow or if the soft patch has ended. More than 100 companies in the benchmark S&P 500 index are slated to release their Q2 results this week. So far, 14 out of the 17 companies that have reported their Q2 results have topped estimates, which is a net positive for earnings season, the market, and the broader economy.
Market Outlook- Uptrend Under Pressure:
The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the current rally is under severe pressure as investors patiently await earnings season and continue to digest the latest economic data. Until all the major averages violate their respective 50 DMA lines on a closing basis, the market deserves the bullish benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.