Flight To Safety; Stocks & Commodities Plunge As Dollar Soars!

Thursday’s May 6, 2010
Stock Market Commentary:

The major averages tanked for the third consecutive day after the euro slid to a fresh 14-month low, gold topped 1,200, and the major averages plunged below important moving averages as concern spread that other European countries might follow in Greece’s ominous footsteps. Volume totals were reported higher on both the NYSE and on the Nasdaq exchange compared to Wednesday’s totals, briefly sending all the major averages below their respective 50 and 200-day moving average (DMA) lines. Decliners trumped advancers by approximately a 10-to-1 ratio on the NYSE and by a 7-to-1 ratio on the Nasdaq exchange. New 52-week lows outnumbered new 52-week highs on the NYSE and on the Nasdaq exchange. There were only 6 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, the same number that appeared on the prior session. Waning leadership has been evidenced by the recent lack of stocks making new highs as the rally came under pressure.

Flight To Safety Sends Stocks Plunging:

The European Central Bank (ECB) held interest rates steady at a record low of 1% on Thursday as the Greek parliament approved austerity measures demanded by the EU and IMF. This sparked massive riots in downtown Athens and sent stock markets plunging across the globe. Around 2:40pm EST, the bears showed up and pounded the stock market. The Dow Jones Industrial Average plunged nearly 1,000 points before buyers showed up and sent the Dow back up nearly 700 points before settling down –347 points on the day. Shortly after the decline, news broke that the move occurred because of a massive trading error at a major firm. However, shortly after the close, the NYSE confirmed that they slowed down trading for 90 seconds which caused a dislocation in stock prices to electronic markets. This was the Dow’s largest single day decline since 1987 and reiterates the importance of raising capital when the market enters a correction. Even after the 700 point rally from the intra day lows, the Dow plunged on heavy volume as fear spread that the EU may collapse if other European countries fall behind on their debt payments.

Gold Soars As A Slew of Other Commodities Tank:

A slew of commodities also got smacked as the dollar soared. Crude oil tanked to a fresh nine-week low in New York as investors move to take risk off the table. Oil lost nearly -10% this week as investors fear that the ongoing EU woes will adversely affect economic demand. However, gold soared as investors flocked to the perceived safety of the yellow metal as risk abounds.

Market Action- In A Correction:

The market is currently in a correction which, according to historical precedent, suggests 3 out of 4 stocks will follow the market lower until a new follow-through day emerges. That said, taking the appropriate action on a case-by-case basis with your stocks prompts investors to raise cash when any holdings start getting in trouble.  It is also important to note that the major averages have experienced multiple “corrections” since the March 2009 lows and each one has been mild at best (less than a -10% decline from the recent high). Therefore, it will be very interesting to see how low this correction goes before the bulls show up and defend support. Additionally, it is important to note that the market can go much lower (or higher) than anyone thinks; so it is of the utmost importance to filter out the “noise” and carefully analyze price and volume for the best read on the health of the market. It will be very interesting to see how the market reacts to Friday’s nonfarm payrolls report slated to be released at 8:30am EST.

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