Markets Perched Below Resistance

Wednesday, September 28, 2011
Stock Market Commentary:

Stocks opened higher as optimism continued to spread that EU leaders will help prevent a Greek default. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. Now, the major averages are simply bouncing off support and unless support is violated (SPX 1101-1123) then, by definition, we should expect this sideways action to continue.

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Markets Looking For Greek Bailout & Durable Goods Fall:

Investors continued to read every headline out of Europe for clues on how EU leaders will handle the situation in Greece. On Wednesday, Finland’s parliament voted to increase the size of the European Union’s debt bailout fund. The move increases the odds for a second Greece bailout and expands the European Financial Stability Facility (EFSF), set up after the Greek May 2010 debt crisis, effective lending capacity to 440 billion euros ($624 billion). In the U.S., durable goods order slid in August by -0.1%, following July’s healthy reading of +4.1%.

Market Outlook- Rally Under Pressure:

The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when several distribution days emerge or August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.


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