Tough Week On Wall Street

Friday, July 2, 2010
Stock Market Commentary:

It was a dismal week on Wall Street as the latest rally failed, the major averages violated support, and fell to fresh 2010 lows. As expected Friday’s pre-holiday volume totals were reported lower on the NYSE and the Nasdaq exchange compared to Thursday’s levels. Decliners led advancers by a 10-to-9 ratio on the NYSE and by a 16-to-11 ratio on the Nasdaq exchange. There were only 4 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, the same reading as the prior session. Meanwhile, new 52-week lows substantially outnumbered new 52-week highs on the NYSE and the Nasdaq exchange. As leadership evaporated in recent sessions, in this commentary it was repeatedly noted – “Without a healthy crop of leaders hitting new highs it is hard for the major averages to sustain a rally.”

Monday-Wednesday’s Action; Stocks Fall Hard During Q2:

Stocks closed lower on Monday after a relatively benign G-20 meeting. The G-20 met in Toronto and pledged to cut deficits in order to help stabilize the global economy. Elsewhere, US consumer spending and personal income rose. On Tuesday, stocks fell hard across the globe after concern spread that China’s robust economy was slowing. China’s leading economic indicators fell and Citigroup (C) said China’s exports will face “strong headwinds” in the second half of the year due to stricter measures from Beijing and the ongoing European debt crisis. US stocks continued to fall after US consumer confidence tanked in June. The Conference Board’s index of consumer confidence fell to 52.9 from May’s revised reading of 62.7. The dismal labor market was cited as a primary cause for the ongoing malaise. Elsewhere, the S&P/Case-Shiller index of home prices rose +3.8% from April 2009 which was the largest year-over-year gain since September 2006.

The second quarter ended on Wednesday sending the Nasdaq Composite and the benchmark S&P 500 Index both fell -12% while the Dow Jones Industrial Average and the small cap Russell 2000 Index skidded –10%, marking their worst quarters since Q4 2008. It was the tech-heavy Nasdaq’s worst second quarter since 2002. In addition, it was worrisome to see the S&P 500 close below 1,040 which has served as formidable support for most of the year. 

Thursday-Friday’s Action; Jobs Fall -125,000 Jobs Last Month:

On Thursday, stocks slid after a series of tepid economic reports were released. US jobless claims unexpectedly rose to 472,000 last week, pending home sales tanked at twice the rate Wall Street had expected and US manufacturing echoed the ominous news from Europe and Asia. This was the latest round of tepid economic data which suggests the economic recovery is less than stellar. Stocks ended lower on Friday after the Labor Department said US employers slashed -125,000 last month and the jobless rate fell to 9.5% and factory orders ticked down last month.

Some might say that Thursday was Day 1 of a new rally attempt due to the fact that the major averages closed in the upper half of their intra-day ranges, recovering from steep losses in the first half of the session. That still does not change the fact that the market is in a correction which emphasizes the importance of raising cash and adopting a strong defensive stance until a new follow-through day emerges. For the past several weeks, this column has steadily noted the importance of remaining very selective and disciplined because all of the major averages are still trading below their downward sloping 50-day moving average (DMA) lines. Their 50 DMA line may continue to act as stubborn resistance. It was also recently noted that a series of capital markets (Crude oil, Copper, NYSE Composite Index, among others) 50 DMA line already sliced below the 200 DMA line, an event known by market technicians as a “death cross” which usually has bearish implications. On Friday, the benchmark S&P 500 Index’s 50 DMA line officially undercut its longer term 200 DMA line which means the benchmark index can be added to the list. Trade accordingly.

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