Stocks Edge Higher; Look Past Sour Housing Data

Wednesday, March 23, 2011
Stock Market Commentary:

On Wednesday, U.S. stocks edged higher as investors looked past an ominous report from the ailing housing market. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines in heavy trade. The current crisis in the Middle East remains in flux which is putting upward pressure on oil and gold and downward pressure on equities. The benchmark S&P 500 was up nearly 100% from its March 2009 low before its latest correction and is still about -17% off its all-time high from October 2007.

Dow Closes Above 50 Day Moving Average line & Home Prices Continue to Fall:

Stocks edged higher helping the Dow Jones Industrial Average close above its 50 DMA line for the first time in two weeks. However, the other major averages closed below their respective 50 DMA lines which means that level still remains the the next level of resistance for those indices. Elsewhere, The Japanese stock market slid nearly -2% as the clean up efforts remain in full force. In other news, the Egyptian stock market opened for the first time in nearly two months. Egyptian stocks, which enjoyed explosive gains for much of the last decade, plunged right at the open which triggered a series of circuit breakers which closed the exchange for half an hour. When the market reopened, it rallied slightly off the lows before closing down nearly -9%.

Europe’s periphery countries remain in flux. The cost of insuring their debt jumped with credit-default swaps (CDS) on Portugal climbing 10 basis points to 544. That is the highest reading since the middle of January and the cost of insuring Irish debt jumped eight basis points to a fresh seven week high of 625. This put downward pressure on the Euro which has enjoyed healthy gains for much of 2011. In the U.S., the Commerce Department said new home sales plunged to record lows which bodes poorly for the ailing  housing market.

Market Action- Market In A Correction; 28-Week Rally Ends

All the major averages sliced below their respective 50 DMA lines on Thursday, March 10, 2011.  Thursday, March 17, 2011 marked day 1 of a new rally attempt which means that the earliest a possible follow-through day (FTD) could emerge would be Tuesday, as long as Thursday’s lows are not breached. That said, the window is now open for a new FTD  to emerge which will confirm the current rally attempt. However, if Thursday’s lows are breached, then the day count will be reset and odds will favor lower prices, not higher, will follow. It is important to note that the recent ominous action reiterates the importance of raising cash and playing strong defense until a new FTD emerges. If you are looking for specific help navigating this market, please contact us for more information.

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