SPX- 200 DMA Line Is Resistance-

Wednesday, November 9, 2011
Stock Market Commentary:

The S&P 500 and Nasdaq Composite are back in negative territory for the year after fresh concern spread regarding Italy’s debt woes. From our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). We are starting to see these “issues” rise to the fore. Our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly, not stand in the way of them.  Stocks confirmed their latest rally attempt on Tuesday (10.18.11) day 12 of their rally attempt when the SPX and NYSE composite scored proper follow-through days (FTD).  It is important to note that every major rally in history began with a FTD but not every FTD leads to a new rally and the current rally is under pressure. That said, one can err on the bullish side as long as the major averages remain above their 50 DMA lines.

Italy Might Need A Bailout & Greece Gets A New Prime Minister:

Risk assets were smacked on Wednesday after Italian bond yields surged. The underlying concern is contagion, meaning other EU countries may default on their debt. What “caused” the virtual panic was when Italian borrowing costs surged to +7% which was the level that previously forced other euro-zone nations (i.e. Greece & Portugal) out of normal credit markets and led them to seek bailouts from external sources such as the EU and IMF. In other news, Filippos Petsalnikos, speaker of Greece’s Parliament will serve as an interim replacement for outgoing Prime Minister George Papandreou. Technically, the benchmark S&P 500 failed at its 200 DMA line which still serves as formidable resistance.

Market Outlook- Rally Under Pressure:

The current rally is under pressure due to the recent sell off which sent the SPX below 1230 and erased half of October’s gains. This means that caution is king until the bulls regain control of this market. In addition, it is important to note that the bulls failed to send the major averages above their respective 200 DMA lines and the neckline of their ominous head-and-shoulders top pattern (1250) in late October. Therefore, we have to expect this sloppy wide and loose action to continue until the market closes above its longer term 200 DMA line. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. If you are looking for specific help navigating this market, please contact us for more information.

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Tuesday, October 04, 2011
Stock Market Commentary:

Stocks ended higher on Tuesday after Bernanke testified on Capital Hill and said he is prepared to take further steps to stimulate the economy, if needed. Tuesday marked Day 1 of a new rally attempt which means that as long as Tuesday’s lows are not breached the earliest a proper follow-through day (FTD) could emerge will be Friday. However, if Tuesday’s lows are breached the day count will be reset. The S&P 500 briefly entered bear market territory defined by a decline of >20% from its recent high. All the major U.S. averages are decidedly negative for the year and are flirting with bear market territory which is not ideal. Several key risk assets (multiple stock markets around the world, Copper, Crude Oil, etc.) officially entered bear market territory over the in recent months which bodes poorly for U.S. stocks and the global economy. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. All the major averages are flirting with support (2011 lows) are until they all break below support, one should expect this sloppy sideways action to continue.

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Factory Orders, Bernanke Fails To Inspire Markets, & Apple Unveils iPhone 5!

The Commerce Department said factory orders slid –0.2% which is not a “healthy” sign for the economy. Ben Bernanke spent part of the day testifying on Capital Hill but failed to inspire markets. The Chairman of the Federal Reserve said he is ready to take more steps to boost growth if the economy continues to weaken. However, it is important to note that the major U.S. averages have given up all their gains since he announced QE 2 in August 2010. This questions the long term effectiveness of the program. It also asks the question of how effective will QE 3 be?  The Price to Earnings (P/E) ratio of the S&P 500 fell to 9.9 2012 projected earnings which is considered “cheap” but a quick look at 2008, suggests markets can get a lot “cheaper” so caution is still advised. In other news, Apple Inc. (AAPL) unveiled their much anticipated iPhone 5 which is scheduled to be released later this month.

Market Outlook- In A Correction:

The major U.S. averages are back in a “correction” as they continue to flirt and in some cases hit fresh 2011 lows. Allow us to be clear: If all the major averages break below their 2011 lows, then we will likely see another leg down. Please, trade accordingly! Several high ranked leaders violated their respective 50 DMA lines in late September which bodes poorly for the bulls and suggests the bears are getting stronger. The latest follow-through day (FTD) which began on August 23, 2011 has officially ended which means we will begin “counting” days before a new rally can be confirmed. In addition, it is important to note that the bears remain in control of this market until the major averages trade above their longer and shorter term moving averages (50 & 200 DMA lines). Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. . If you are looking for specific help navigating this market, please contact us for more information.

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 Coming Up This Week:

WEDNESDAY: Weekly mortgage apps, Challenger job-cut report, ADP employment report, IS non-mfg index, oil inventories; Earnings from Costco, Monsanto, Marriott
THURSDAY: BoE announcement, ECB announcement, jobless claims, chain-store sales; Earnings from Constellation Brands
FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint’s 4G plans unveiled
Source: CNBC.com