Where’s The Volume?

Monday, October 10, 2011
Stock Market Commentary:

Stocks enjoyed sharp gains on Monday (Day 5 of their current rally attempt) but failed to produce a proper follow-through day (FTD) since volume was below Friday’s levels. On a positive note, the major averages are in the process of tracing out a bullish double bottom (W) pattern (shown above). In early October, the S&P 500 briefly entered bear market territory defined by a decline of >20% from its recent high however the bulls quickly showed up and defended that level. All the major U.S. averages are decidedly negative for the year and are flirting with bear market territory which is not ideal. Several key risk assets (multiple stock markets around the world, Copper, Crude Oil, etc.) officially entered bear market territory over the in recent months which bodes poorly for U.S. stocks and the global economy. Nearly every day since mid-August, we told you that the major averages are trading between support and resistance of their 2-month base and until they break above resistance or below support expect this very sloppy trading range to continue. Put simply, after testing support (2011 lows), the market is now bouncing back towards resistance of its wide-and-loose 2-month base.

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Bullish Double Bottom (W) Pattern Forming & Earnings Season Is About To Begin!

Stocks rallied sharply on Monday but failed to produce a sound follow-through day (FTD) to confirm their latest rally attempt. Over the weekend, Germany and France agreed to another bailout to help Greece work though their financial woes. Also, Dexia, the large toxic EU bank, was broken up and sold which helped avoid another “lehman-type” crisis. Q3 earnings season is around the corner. So far, analysts believe that the average company in the S&P 500, excluding financials, may have increased earnings by +14% in Q3. If that occurs, that will be the smallest gain since the end of 2009 according to data Bloomberg.com. Alcoa Inc. (AA), the first Dow component to release Q3 results, will report earnings after Tuesday’s close and will officially start earnings season. Remember, after analyzing the actual results, it equally important to see how the individual stock and broader averages react to the numbers. This is a great “tell” on how investors digest Q3 earnings.

Market Outlook- In A Correction:

The major U.S. averages are still in a “correction” as they continue to bounce towards resistance of their 2-month base. The latest follow-through day (FTD) which began on August 23, 2011 has officially ended which means we will continue “counting” days before a new rally can be confirmed. In addition, it is important to note that the bulls scored a victory since many of the major averages closed above their downward sloping 50 DMA lines for the first time since late July! The next stop is September’s highs and then their 200 DMA lines. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. . If you are looking for specific help navigating this market, please contact us for more information.

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