Friday, August 10, 2012
Stock Market Commentary:
On average, risk-on assets rallied as hope spread that we will see more easing from global central banks. The latest round of economic and earnings data did little to excite investors as the data continues to be blasé at best. Some market participants are hoping that this lackluster data will force at least one of the prominent central bank’s hand into another round of stimulus. Q2 earnings continue to be disconcerting for the bulls. The vast majority of companies so far have beaten already lowered expectations but the “beat” was marginal at best. Furthermore, the number of strong blow-away numbers has been much lower than prior years.
Monday-Wednesday’s Action: Stocks Crawl Higher On Light Volume:
Stocks rallied on Monday but closed near their lows as volume continued to be suspiciously thin. The S&P 500 continued tracing out a series of higher highs and higher lows since hitting a near term bottom in June which is constructive for the bulls. In Europe, Spain’s stock market (IBEX) surged +4.4% after trading was halted for nearly 5 hours due to a technical issue.
Stocks rallied on Tuesday but closed in the middle of the day’s range on below average volume. Normally, volume is considered a strong sign of institutional sponsorship which means the bulls want to see volume expand when markets rally and contract when markets decline. The bears want the exact opposite. However, when markets advance on tepid volume that normally is not constructive for the bulls. Greece’s credit rating was cut by S&P to “Negative” on Tuesday as concern spread about their ability to secure another round of financing. A slew of stocks released their Q2 numbers this week. One of the big “blow-ups” this earnings season was Priceline.com. PCLN gapped down -15% after Tuesday’s close and was crushed on Wednesday. In May of this year, PCLN formed an ominous double top pattern which we wrote about numerous times on our sister site: FindLeadingStocks. Since then PCLN has gone nowhere and is now going down in history as another perfect example of why a winning stock eventually needs to be sold once it begins showing techincal weakness. Other stocks that we have written about recently that fit this category perfectly are: Netflix.com (NFLX), Green Mountain Coffee (GMCR) & Chipotle Mexican Grill (CMG).
Stocks were quiet on Wednesday as the summer doldrums took full effect. The one bright spot this week was the IPO market. Dean Foods (DF) said it would spin off its organic food division, The WhiteWave Foods. This sent shares of the food giant soaring by 40.6%. Bloomin’ Brands (BLMN), the parent company of Outback Steakhouse, came public alongside a slew of other high profile companies.
Thursday & Friday’s Action: Stocks Edge Higher on Light Volume:
Thursday was another quiet, low volume, tight trading session on Wall Street. The major averages ended mixed as investors digested the latest round of economic and earnings data. Before the open, the Labor Department said initial weekly jobless claims totaled 361,000, which missed the Street’s expectation for 375,000. The reading was also less than the prior week’s count of 365,000 which bodes well for the ailing jobs market. Meanwhile, continuing claims rose to about 3.332 million from 3.272 million. In other news, the trade deficit narrowed to $42.9 billion in June after an upwardly revised reading in May of $48.0 billion. Analysts were expecting June’s deficit to be $47.5 billion. A separate report showed that wholesale inventories slid by -0.2% in June which is fell short of the Street’s forecast for a gain of +0.3%. Stocks rallied on Friday as investors digested the latest round of lukewarm economic data. Export prices, excluding agriculture, slid by -0.3% last month which followed a -1.4% drop in June. Excluding oil, import prices fell by -0.4% in July which followed a -0.3% decline in June. The Treasury Budget for July showed a $69.6 billion deficit which is better than the Street’s expectation for $71.0 billion.
Market Outlook- Confirmed Rally
From our point of view, the market is in a confirmed rally which means the path of least resistance remains higher. It is somewhat encouraging to see all the major averages close above their respective 50 DMA lines and at new multi month highs. Technically, the 200 DMA line and June’s lows are the next level of support while April’s highs are the next level of resistance for the major averages. As always, keep your losses small and never argue with the tape. 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!