E.U. Fears Dominate Market Psyche

SPX - Continues Testing Support

SPX - Continues Testing Support

Tuesday, November 15, 2011
Stock Market Commentary:

The S&P 500 and Nasdaq Composite continue trading between positive and negative territory for the year as investors continue to fret over the ongoing situation in Europe. 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). Finally, others are starting to take notice of this important question. 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.

EU Jitters Hurt Stocks But U.S. Economic Data Helps:

Risk assets fell for a second straight day on Tuesday as fear spread that a new 2-tier Europe may be on the horizon. Mario Monti, Italy’s new Prime minister is scheduled to meet the leaders of Italy’s two largest parties to discuss the “many sacrifices” needed to get back on “track.” On average, economic data in the U.S. topped estimates which bodes well for the ongoing economic recovery. The Commerce Department said Retail sales rose +0.5% in October which topped the Street’s estimate for a +0.3% gain. Elsewhere, NY manufacturing data rose +0.61 in November which snapped a 5-month losing streak and also stopped estimates for a reading of negative -2.1. Meanwhile, the Labor Department said, producer prices slid by -0.3% in October which was the first decline in four months and bodes well for inflationary concerns. Technically, the benchmark S&P 500 continues to trade near/above support (1230 & 1250) which bodes well for this ongoing rally.

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, feel free to contact us for more information. That’s what we are here for!

 

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