Tuesday, April 10, 2012
Stock Market Commentary:
Stocks and other risk assets fell on Tuesday after equity markets in Europe plunged in heavy volume and the world awaits Q1 earnings season to begin. After Tuesday’s close, Alcoa (AA) officially kicked off earnings season and as always, it will be interesting to see how companies did last quarter and how their stocks react to the news. The fact that the Dow Jones Industrial Average and the Small Cap Russell 2000 index broke its 50 DMA line on Monday suggests this rally is under pressure. If the other major averages follow suit, then the market will officially enter a correction. The next level of support for the S&P 500 and Nasdaq composite are their respective 50 DMA lines.
Q1 Earnings Season Begins & Economic Data Fails To Impress:
On Tuesday, stocks in Europe were smacked as debt woes resurfaced and the world awaited the official start to Q1 earnings season. Our longstanding readers know that in addition to looking at the company’s numbers we pay close attention to how the stocks, and the major averages, react to the data. This allows us to see how the market participants are “voting” and helps us filter out the noise and focus on what matters most: price action. Economic data failed to impress. The Commerce Department said wholesale inventories rose more than expected in February. Inventories rose +0.9% to a record $478.9 billion which topped the Street’s forecast for a +0.5% gain. The National Federation of Independent Business said its index, which measures confidence among small businesses, slid for the first time in 6-months which reiterates recent concerns regarding a slowdown in Q1 economic growth. The index fell to 92.5 in March from 94.3 in February.
Market Outlook- In A Correction
From our point of view, the stock market is back in a correction as the Dow Jones Industrial Average, Russell 2000, and S&P 500 all traded below their respective 50 DMA lines. Remember, it is quite normal to see markets pullback to digest their latest move but from a risk/reward standpoint, being heavily long right now does not offer an optimal risk/reward level. 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!