Korea, China, & EU Debt Woes Send Dow Below 50 DMA Line

Tuesday, November 23, 2010
Stock Market Commentary:

Stocks and a handful of commodities fell as the USD rallied after a slew of geopolitical threats sent investors rushing to so called “safe” investments (i.e. USD and Gold). 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. Wednesday marked day 1 of a new rally attempt, which means that as long as Wednesday’s lows are not breached, the earliest a possible FTD could emerge will be Monday, November 22, 2010.

Korea, EU Debt Woes & Chinese Reserve Requirements Hurt Stocks:

Overnight, North Korea attacked a South Korean island and concern grew that Europe’s debt crisis will spread beyond Greece and Ireland. Elsewhere, several leading banks in China fell on concern that Beijing will raise their reserve requirements again. South Korea scrambled fighter jets and returned fire after North Korea sent dozens of shells at Yeonpyeong island. Several world leaders condemend North Korea’s action and said the news was very alarming.

U.S. GDP Tops Estimates & Fed Minutes:

Before Tuesday’s open, the government said GDP rose at a +2.5% annual rate in the third quarter which topped the initial estimate of +2%. After Tuesday’s open, the National Association of Realtors said existing home sales fell in October which is the latest evidence that the beaten up housing market is still in shambles. At 2pm EST, the Federal Reserve released the minutes of its latest meeting which largely reiterated the recent Fed rhetoric and helped explain QE II.

Market Action- 12 Week Rally Ends – Week 2 In A Correction:

It was disconcerting to see the Dow Jones Industrial Average slice below its 50 DMA line for the first time since the FTD. 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. Trade accordingly.

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