Stocks Dive On Tepid Housing Data

Tuesday, August 24, 2010
Stock Market Commentary:

The major averages ended in the red after existing home sales tanked, the 10-year Treasury yield plunged to the lowest level in 17 months, and the yen rose to the highest level versus the dollar since 1995! Volume reported on the NYSE and the Nasdaq exchange rose on Tuesday compared to Monday’s levels which marked the latest distribution day and effectively ended the current rally attempt. Decliners led advancers by over a 3-to-1 ratio on the NYSE and by almost a 3-to-1 ratio on the Nasdaq exchange. New 52-week lows were about even with new 52-week highs on the NYSE but trailed by a large margin on the Nasdaq exchange. There were only 6 high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, much lower than the 25 issues that appeared on the prior session.

Stocks Tank on Tepid Housing Data:

Overnight, stocks in Asia and Europe fell after the yen jumped to a 15- year high against the dollar and Treasury rates slid to their lowest level since the March 2009 bottom. This put pressure on US futures and set the stage for a weak open. The “big” headline of the day occurred when the National Association of Realtors said existing home sales slid by -27.2% to a 3.83 million annual rate in April. The outsized decline was attributed to a high unemployment rate and slowing economic data. This was also the lowest reading in a decade and lower than the worst estimate on Wall Street.

Market Action- In A Correction:

The technical action in the major averages continues to weaken alongside the latest round of tepid economic data. Currently, resistance for the the major averages are their 50 DMA lines, then their longer term 200 DMA lines. It is also disconcerting to see the action in several leading stocks remain questionable as evidenced by the dearth of high-ranked leaders breaking out of sound bases.

From our perspective, Monday’s negatively reversal coupled with Tuesday’s ugly distribution day effectively ended the latest rally attempt which emphasizes the importance of remaining cautious until the rally is back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.

The Markets In  A Correction- Does Your Broker Know?
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