Stocks Mixed as Q3 Winds Down

Thursday, September 29, 2011
Stock Market Commentary:

Stocks ended mixed on Thursday after Germany passed a key vote to expand the EU bailout fund and U.S. economic data topped estimates. 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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Stocks Rally On German Vote & Stronger-Than-Expected Economic Data:

Before Thursday’s open, Germany’s Parliament approved a plan to expand the euro-zone’s bailout fund. This helped allay concerns of an imminent Greek default. In the U.S., investors were served to stronger-than-expected economic data points: jobless claims and Q2 GDP.  The Labor Department said, weekly jobless claims slid by 37,000 to 391,000 last week which was below the psychologically important 400,000 mark for the first time in months. This easily exceeded the Street’s estimate for a decline of -3,000. Elsewhere, the government said final Q2 GDP rose +1.3%, which topped estimates of +1.2%. Finally, pending home sales slid -1.2% to 88.6 which was better than the -2% decline expected on Wall Street.

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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