China Slows Down; Threatens Global Recovery

SPX Pulling Back After Encountering Resistance Near 2011's High

SPX Pulling Back After Encountering Resistance Near 2011's High

Monday, March 05, 2012
Stock Market Commentary:

Stocks were under pressure across the globe after China lowered its GDP forecast to 7.5% for 2012. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. Since then, stocks have been enjoying a very strong uptrend. However, the benchmark S&P 500 encountered resistance above its 2011 high (1370) and is currently pulling back to consolidate its recent move. It would be perfectly normal and healthy to see a 5-9% pullback before a new leg higher begins. That would bring the S&P 500 down to 1310-1240. Until then, the bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line.

China Slows Down; Threatens Global Recovery, E.U. & U.S. Economic Data Tops Estimates:

Before Monday’s open, China lowered its 2012 GDP figures to an 8-year low of 7.5% which sent a slew of risk assets (mainly stocks and commodities) lower across the globe. For the better part of the last decade China’s economy has been one of the strongest in the world, especially after the 2008-2009 financial crisis. Therefore, if China’s economy begins to slowdown and we get another “shock” to the global economy, the ongoing (and fragile) global recovery could be in real jeopardy. In Europe, retail sales snapped a four month losing streak, topped estimates, and unexpectedly rebounded in January. Sales rose +0.3%from December, after falling by half a percentage point at the end of 2011. Economic data in the U.S. topped estimates. The ISM’s service index rose to 57.3 last month which topped estimates and was above the boom/bust line of 50. The Commerce Department said factory orders slid -1% in January which was the largest decline in over a year but still came in above estimates for a decline of -1.5%.

Market Outlook- Confirmed Rally

Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December and are extended by any normal measure. At this point, all this means is that the odds for a pullback increase. However, markets can very easily go from overbought to extremely overbought so trade accordingly. As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!

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