Thursday, March 22, 2012
Stock Market Commentary:
Stocks and other risk assets fell on Thursday after the latest economic data from China and Europe missed estimates. As we have been mentioning for weeks, the market is extended to the upside and we would not be surprised to see a nice pullback to shake out the weak/late hands. 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. The benchmark S&P 500 paused near its 2011 high (~1370) before moving higher and that level should now become support. The next level of support would be the 50 DMA line then a deeper 5-9% pullback. That would bring the S&P 500 down to 1320-1280. It is important to note that the bulls remain in control of this market as long as the benchmark S&P 500 stays above its 50 DMA line.
China And Europe Slow, U.S. Remains Strong:
Before Thursday’s open, stocks in Europe fell after two weaker-than-expected economic data points from China and Europe were released. China’s PMI, which measures its manufacturing sector, slid for the 5th consecutive month which led many to question the health of the global recovery. A few hours later, the euro-zone said its PMI index unexpectedly fell due to weakness in France and Germany, which are Europe’s two strongest economies. Separately, there was a 24-hour strike in Portugal to protest their austerity measures and Italy’s largest trade union also called for a strike which would weaken two already fragile economies.
All this overshadowed decent strength from the U.S. economy. The Labor Department said weekly jobless claims fell -5,000 to 348,000which was a fresh four year low. The Conference Board said its index of leading economic indicators rose +0.7% in February which topped the Street’s estimate for a gain of +0.4%. Finally, home prices remained relatively flat in January across much of the U.S. according to the Federal Housing Finance Agency. However, compared January 2011, prices fell by -0.8%.
Market Outlook- Confirmed Rally
Risk assets have begun pulling back which at this point is considered normal. The key going forward is to gauge the health of the pullback and see if the bulls are able to defend logical areas of support (recent chart lows and important moving averages). So far this action is considered healthy for the risk on trade. However, if sellers show up and support is breached then the bears will have regained control of this market. 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!