Another Volatile Week On Wall Street

Friday, June 11, 2010
Market Commentary:

It was another volatile week on Wall Street as investors digested a slew of economic data. Stocks edged higher on Friday as volume was slid compared to Thursday’s levels on both major exchanges. Advancers led decliners by over a 2-to-1 ratio on the NYSE and the Nasdaq exchange. There were 19 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the 12 issues that appeared on the prior session.  New 52-week highs outnumbered new 52-week lows on the NYSE, but not on the Nasdaq exchange.

Monday-Tuesday’s Action: May’s Lows Are Testest But Will They Hold?

Stocks opened negatively reversed on Monday (opened higher but closed lower) as the euro slid to a fresh 4-year low. The selling continued in the aftermath of Friday’s dismal jobs report. Goldman Sachs (GS) got smacked after it received a subpoena from the Financial Crisis Inquiry Commission (FCIS) due to its failure to comply with requests for documents. Stocks finished mixed on Tuesday after Fed Chairman Ben Bernanke said he does not expect a “double dip” recession in the US.The Dow Jones Industrial Average, Nasdaq Composite, and small-cap Russell 2000 indexes all traded below their May 25, 2010 lows while the benchmark S&P 500 Index came within 2 points of last month’s low. So far, support near prior chart lows has been tested and appears to have held, but any further deterioration would suggest that another leg lower may follow.

Wednesday-Friday’s Action:

On Wednesday, stocks negatively reversed afte the Federal Reserve released its Beige Book. The Fed survey said economic growth was “modest” which worried investors. The Beige Book which is published two weeks before a Fed meeting said, “Economic activity continued to improve since the last report across all 12 Federal Reserve Districts, although many Districts described the pace of growth as ‘modest.’” The bulls showed up and stocks soaring on Thursday as the euro bounced from a 4 year low. However, volume, an important indicator of institutional sponsorship, was reported lighter than Wednesday’s levels on both major exchanges which prevented the S&P 500 from scoring a follow-through day (FTD) and suggested large institutions were not aggressively buying stocks.

Overnight, stocks in Asia rose after a slew of healthy economic reports were released from China, Japan and Australia. The latest data showed accelerating economic growth which was a welcoming sign from that region. Chinese exports surged to a six year high which helped reaffirm the notion that the world’s fastest-growing major economy will continue to fuel the global recovery. Japan’s GDP rose at an annualized +5% rate in the first quarter and Australia’s nonfarm payrolls report rose for a third consecutive month. In the US, weekly jobless claims fell while the trade deficit widened to the highest level in a year as exports fell. All this, sent the US dollar lower and a host of dollar denominated assets higher (mainly stocks and commodities) as these markets work off their deeply oversold levels. Stocks ended higher on Friday as the major averages consolidated a very volatile week and a lackluster retail sales report.

Market Action- In A Correction:

The benchmark S&P 500 Index marked Day 13 of its current rally attempt while narrowly avoiding undercutting its 5/25/10 low thus far but failed to score a proper FTD due to the light volume that accompanied Thursday’s strong move.  The Dow Jones Industrial Average marked Day 4 of its latest rally attempt while the Nasdaq composite marked day 2. It is well known that a market should not be considered “healthy” unless it trades above its rising 200-day moving average (DMA) line. The fact that all the major averages are below both their 50 & 200 DMA lines bodes poorly for the near term. That said, the bears will likely remain in control until the popular averages close above their important moving averages. Remember, we have seen these very strong light volume rallies in the past only to fail a few days later. Trade accordingly.

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