Stocks Slide As Global Recovery Slows

Friday, August 13, 2010
Stock Market Commentary:

For the week, the major averages ended in the red as fear spread that the global economic recovery may begin to wane and the US dollar soared. Volume totals were reported lower on the NYSE and on the Nasdaq exchanges versus the prior session which was a somewhat welcoming sign. Decliners led advancers by approximately a 10-to-9 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows by a large margin on the Nasdaq exchange. There were only high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, higher than the 3 issues that appeared on the prior session.

Monday & Tuesday’s Action- China’s Robust Economy Wanes & The Greenback Soars!

Stocks closed higher on Monday after McDonald’s Corp. (MCD) topped sales estimates and gapped up to a fresh 52-week high and Ebay Inc. (EBAY) rallied after its former unit Skype SA filed for an initial public offering for $100 million. Stocks got smacked on Tuesday as investors digested weak economic data from China and the US and the Federal Reserve decided to hold rates steady at 0-.25%. Chinese imports disappointed analysts lofty estimates which led many to question the health of the ongoing recovery. In the US, stocks opened lower after US productivity fell for the first time in 18 months and a decline in small business leaders’ optimism led many to question the health of the ongoing global recovery. The Fed held rates steady near record lows but the big news was that they said they will reinvest principle payments on their mortgage holdings into long-term Treasury securities, which is their first attempt to spark economic growth in over a year.

Wednesday-Friday’s Action- Stocks Slide on Slowdown Woes:

The selling continued on Wednesday after a weaker than expected manufacturing report was released from China and the US trade gap widened. China released a weaker than expected manufacturing report which heretofore has been one of the strongest sectors of China’s robust economy. This led many to question whether or not China’s strong economy will be able to offset weakness in other areas of the global recovery. In the US, the trade deficit unexpectedly grew in June to the highest level since October 2008. The report showed that consumer goods imports rose to a record level and exports fell. Fears of a global economic slowdown sent the US dollar soaring which also put pressure on a slew of dollar denominated assets (mainly stocks and commodities). 

Stocks ended lower on Thursday after after jobless claims rose and the latest round of Q2 earnings fell short of analysts’ estimates. The Labor Department said unemployment claims unexpectedly rose to the highest level in five months and several well-known tech stocks got whacked after Cisco Systems (CSCO) released disappointing Q2 results. The sour outlook weighed on the Nasdaq Composite Index where many high profile tech stocks reside. Stocks ended lower on Friday after retail sales and consumer sentiment edged higher but fell short of the Street’s estimates while consumer prices rose which helped ease deflation woes.

Market Action- Rally Under Pressure:

The technical action in the major averages has deteriorated significantly.  Not all of the major averages managed to rally above their recent chart highs, and all have now sliced back below their respective 200-day moving average (DMA) lines. It is also worrisome to see the number of distribution days pile up in recent weeks which puts pressure on the current five-week rally.  Whenever a market rally becomes under pressure (as it is now), it is usually wise to err on the side of caution and adopt a strong defensive stance until the bulls regain control. Trade accordingly.

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