Friday, October 12, 2012
Stock Market Commentary:
The major averages fell last week and broke down below their respective 50 DMA lines for the first time since July. So far this is nothing more than a normal pullback after a big run. The S&P 500 is less than -4% below its multi year high of 1474. Normally, one would like to see the bulls show up and defend the 50 DMA lines for the major averages and leading stocks. The fact that all the major averages violated their respective 50 DMA lines last week put pressure on this multi-month rally. Remember, over the next several weeks as we make our way through Q3 earnings season- it is very important to not only focus on the actual numbers but more importantly how stocks (and the major averages) react to the numbers.
Monday-Wednesday’s Action: Rally Under Pressure As Nasdaq Slices Below 50 DMA line
Thursday & Friday’s Action: Stocks Bounce But End Week Lower
Stocks opened higher on Thursday, helping the S&P 500 and the Dow Jones Industrial Average bounce off their respective 50 DMA lines. One of the catalysts for Thursday’s bounce was a series of healthy economic data from the US. Before Thursday’s open, the Labor Department said jobless claims fell by 30,000 to a seasonally adjusted 339,000 which is its lowest level since February 2008. This continues the recent trend of healthier activity from the jobs market. The trade deficit widened in August to $44.22 billion which barely topped the Street’s estimate for $44 billion. Meanwhile, import prices rose +1.1%. Stocks were quiet on Friday as investors digested mixed to negative earnings data from Wells Fargo (WFC) and JP Morgan (JPM).
Market Outlook- Rally Under Pressure:
The multi-month rally is currently under pressure as the major averages trade near to slightly below their respective 50 DMA lines. Normally, when this happens we begin to raise cash and adopt a more defensive stance. We will turn more bullish if/when the major averages jump back above their respective 50 DMA lines. Until then caution is king. As always, keep your losses small and never argue with the tape.