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SPX- Weaker Global Economic Outlook Hurts Stocks

Monday, April 30, 2012
Stock Market Commentary:

Stocks and a slew of other “risk assets” slid on Monday after Spain fell back into a double dip recession. As earnings and economic data continues 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. We find it encouraging to see all the major averages jump back above their respective 50 DMA lines in the wake of Apple’s blow-out quarter.

Global Economy Slows:

Stocks and a slew of risk assets fell on Monday after the latest data from across the globe largely came in weaker-than-expected. From a pure fundamental play, the nearly half of Europe is already in a recession. According to Bloomberg, the following European countries are already in a double dip recession: UK, Ireland, Denmark, Holland, Belgium, Czech Republic, Slovenia, Greece, Italy, Spain, and Portugal. However, the fact that markets (especially, the euro) are holding up rather well in-spite of this news, is a net positive in the near term. The underlying notion that is helping markets rally, or at least not fall, is that the recent spate of “bad” economic data will force global central banks’ to step up and engage in another round of QE. Spain was the latest European domino to fall into a double dip recession which bodes poorly for the global economy. The U.S. economic data was not ideal. The Chicago ISM index, which measures business activity in the Midwest fell to 56.2 in Apiril from 62.2 in March. It missed the Street’s estimate for 61 but managed to stay above the boom/bust level of 50. Meanwhile, the Commerce Department said household income rose +0.4% in March which was the largest gain in three months.

Market Outlook- Confirmed Uptrend

From our point of view, the market back in a confirmed uptrend as the bulls appear to have regained control of this market. The major averages are back above their respective 50 DMA lines and short term downward trendlines (shown above) which is a healthy sign. 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!