Day 3 of A New Rally Attempt; 200 DMA Line Is Support

Monday, June 20, 2011
Stock Market Commentary:

Stocks and a slew of commodities ended mixed as investors wait for the next step in the ongoing situation in Greece. Monday marked day 3 of a new rally attempt for the S&P 500, Dow Jones Industrial Average, and Russell 2000 and Day 1 for the tech heavy Nasdaq composite. Remember, it is quite normal to see markets “bounce” after a steep decline. Going forward, the key is to study the “bounce” and wait for a powerful up day (follow-through day) to confirm a new rally attempt. Since Thursday marked Day 1, as long as Thursday’s lows are not breached, the earliest a proper FTD could emerge would be Tuesday. However, if Thursday’s lows are breached, the day count will be reset. It is important to note that until a new FTD emerges, the bears remain in control of this market. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly as all the major averages and a slew of key commodities are down significantly from their May 2011 highs.

EU & IMF Visit Greece:

The European Union (EU) and International Monetary Fund (IMF) sent a team of inspectors to visit Athens in an attempt to reach a conclusion on the on going debt dilemma. The joint team is scheduled to visit while the Greek parliament holds a confidence vote on Tuesday night regarding Prime Minister George Papandreou’s new cabinet.

Market Outlook- Market In A Correction:

The market is back in a correction now that all the major averages closed below their respective 50 DMA lines and important upward trendlines. Since the beginning of May, we have urged our clients and readers to be extremely cautious as the major averages and a host of commodities began selling off. Looking forward, the next level of resistance for the major averages is their recent lows (i.e. 1294 in the S&P 500) and then their respective 50 DMA lines. The next level of support is their longer term 200 DMA lines and then their March 2011 lows.

For those of you that are interested, the S&P 500 hit a new 2011 high on May 2, 2011. Two days later, on Wednesday, May 4, 2011, we turned cautious and said “The Rally Was Under Pressure” (read here). Then on Monday, 5.23.11, we changed our outlook to “Market In A Correction” (read here). On Monday, June 6, 2011 we pointed out that the S&P 500 violated its 9-month upward trendline (read here) and reiterated our cautious stance.  If you are looking for specific help navigating this market, please contact us for more information.

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