Stocks Encounter Resistance

Tuesday, December 7, 2010
Stock Market Commentary:

Stocks opened higher and hit a new recovery high on Tuesday after the Bush tax cuts were extended and a new round of additional cuts were announced. However, the gains were short lived as the market spent the rest of the day drifting lower after encountering resistance near their recent highs. In the future, to avoid any confusion, we are no longer going to use outside resources to label, instead focus on what has worked exceptionally well for us over 7 years, our own analysis. A popular outside source changed their label on Friday to Market in a confirmed rally, without a proper FTD emerging. This is bizarre and frankly plain irresponsible. From our standpoint, the rally that began on September 1, 2010 is still intact and we said that in our commentary on November 16, 2010 when the outside source said the rally ended –Full Story here. However, we changed it to be inline with them but that was clearly a mistake. If anyone has any questions about this, please feel free to fill out our contact form and we will be happy to address it in more detail.

Tax Cuts Extended:

After Monday’s close, the government said it would extend the Bush tax cuts which is viewed as a net positive for the economy and the market. Mohamed El-Erian, PIMCO’s co-CIO told Bloomberg that the new agreement worked out by the Obama administration is good for growth. El-Erian is best known for his prescient calls on the market and the economy. Therefore, when he speaks, we listen.

Market Action- Market In Confirmed Rally Week 15

It is encouraging to see the bulls show up and defend the 50 DMA lines for the major averages. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. Put simply, stocks are strong. Trade accordingly.

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