50 DMA Line Is Resistance

Tuesday, May 24, 2011
Stock Market Commentary:

Stocks and a host of commodities bounced on Tuesday after Monday’s strong sell off. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly.  From our vantage point, the market rally remains under pressure due to the lackluster action in the major averages and several leading stocks.

German Economic Data Tops Estimates; New Home Sales Rise, Stocks & Commodities Bounce:

Before Tuesday’s open, business confidence in Germany was unchanged in May which topped expectations for a negative reading. Germany is Europe’s largest and strongest economy and is largely the binding force for the entire Euro. Therefore, any stronger than expected economic data is typically well received as investors across the globe are keeping a close eye on the entire continent. In other news, investment giants Goldman Sachs (GS) and Morgan Stanley (MS) both raised their 2011 price targets for a slew of commodities. This came a few short weeks after lowering their expectations for the same basket of commodities. This flippant behavior is typical for many large investment banks and is why we isolate the “noise” and focus our client’s collective attention on what matters most: market action. In other news, the Commerce Department said new home sales rose +7.3% to a seasonally adjusted 323,000 annual rate. This was the highest reading since December 2010 and the second straight increase. However, compared to the same period last year, sales tanked -23.1%.

Market Outlook- Market In A Correction

From our point of view, the market is in a correction as a new downtrend has formed and the 50 DMA line is broken for many of the major averages.  Since the beginning of May, we have urged caution as the major averages and a host of commodities began selling off. Looking forward, the next level of support is the 9-month upward trendline and the next level of resistance is the 50 DMA line and then the 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.

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Written by

* Sarhan Capital, Founder & CEO (2004-Present) * Authors long/short weekly macro research note since 2004 * Completed Bill O’Neil’s CAN SLIM Master’s program in 2007 & developed the D.A.M.P. investment system in 2008