Stocks Tank On Contagion Woes

Tuesday, May 4, 2010
Stock Market Commentary:

The major averages tanked on Tuesday after the euro plunged to a one year low as fear spread that Europe’s debt crisis will spread and China’s manufacturing fell to a six-month low. Volume totals jumped on both exchanges reported on the NYSE and on the Nasdaq exchange compared to Monday’s levels which marked another distribution day for the major averages and led the NYSE composite to break its 50 DMA line for the first time since the March 1, 2010 FTD. Decliners trumped advancers on both exchanges but new 52-week highs still outnumbered new lows.

Contagion Woes Slam Markets:

Stocks plunged around the world as fear spread that other European nations may need additional economic assistance. This sparked a strong flight into quality which sent the greenback higher and a slew of dollar denominated assets lower; mainly stocks and commodities. The euro skidded to a one year low against the dollar as fear spread that the entire EU may disintegrate.

Market Action-  Major Averages Test Support:

The NYSE composite was the first popular index to slice below its respective 50 DMA line which bodes poorly for this 10-week rally. Meanwhile, the other major averages fell back towards their respective 50 DMA lines. At this point, it will be critical to see if the bulls show up and protect this important area of support or if the bears manage to continue sending the market lower.

Over the past two weeks, this column has consistently mentioned that the major averages have been steadily rallying since early February and a pullback of some sort should be expected. Furthermore, we mentioned that the current rally was under pressure due to the disturbing number of distribution days that emerged in recent weeks. So, we hope that Tuesday’s sell off (and any further downside action in the near term) should not take any of you by surprise. Trade accordingly.

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