EU Debt Woes Sends Euro Plunging

Tuesday, November 30, 2010
Stock Market Commentary:

The euro sliced below its 200 DMA line and its psychologically important level of 1.30 this week as concern spread that their debt woes will spread. The rally which began on the September 1, 2010 follow-through day ended on Tuesday. November 16, 2010 as stocks and commodities plunged in heavy trade.  All the major averages took out their latest rally attempt’s lows which means the day count was reset, except for the Nasdaq composite.

Shanghai Index Tumbles To 7-Week Low:

The euro plunged to a fresh multi month low and traded below its 200 DMA line as concern spread that EU’s debt woes will spread. The US dollar rallied on the news which sent a host of dollar denominated assets (i.e. stocks and commodities) sharply lower. Overnight, China’s Shanghai Index shed -3.1% and tumbled to a fresh 7-week low after a shortfall of cash in the domestic money market caused a liquidity squeeze. It is also important to note that the Shanghai index violated its 50 DMA line in mid-November which bodes poorly for other global equity markets.

US Economic Data Is Mixed:

Before Tuesday’s open, the Case-Shiller Home price index fell faster than expected. The report showed that prices of single-family homes in September slid 2x more than forecast. Elsewhere, the ISM released its Chicago based business barometer which topped estimates and rose to +62.5 this month. This was the highest reading since April and topped October’s reading of 60.6. Finally, consumer confidence jumped to the highest level since June which bodes well for the holiday shopping season. The Conference Board said its index of consumer sentiment rose to 54.1 in November which is the strongest reading since June and topped October’s reading of 49.9.

Market Action- Week 3 In A Correction:

The Dow Jones Industrial Average, S&P 500, and the NYSE composite sliced below their respective 50 DMA lines this week which is not a healthy sign. However, it was encouraging to see the bulls show up and defend that important level. The 12-week rally ended on Tuesday, November 16, 2010 after the major averages plunged in heavy volume back down towards their respective 50 DMA lines. In recent weeks, we have repeatedly written about how the major averages were experiencing wide-and-loose action after a big move and made it very clear that that was not a healthy sign. At this point, we are looking for a new rally to be confirmed with a new follow-through day before taking any new positions. Caution and patience are key at this point. The tech-heavy Nasdaq composite remains the strongest index as it remains well above its 50 DMA line. Trade accordingly.

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