Tuesday, August 30, 2011
Stock Market Commentary:
Stocks were relatively quiet on Tuesday as stocks paused to consolidate their very strong week-long +7% rally. The major averages are technically in a new confirmed rally which means probing the long side may be prudent, if/when high ranked stocks begin to trigger fresh technical buy signals. Even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.
Confidence Falls; Home Prices Tick Higher, & Fed Minutes:
On Tuesday, the Conference Board’s confidence index tanked to -44.5, the weakest since April 2009, from a revised 59.2 reading in July. The sharp decline in confidence largely reflects a plunging stock market and a weakening global economy. The decline was the largest point drop since October 2008 and missed the Street’s estimate for 52. The S&P/Case-Shiller index of home values in 20 cities fell -4.5% from June 2010. Home prices, according to the index, slid -4.6% from May 2010 to May 2011, however, barely topped the Street’s -4.6% estimate.
Since the latest FTD, the benchmark S&P 500 soared +7.5% but still remains down over -6% for August and down -4.1%for 2011. The FOMC released the minutes of their latest meeting which showed that several policy makers favored more aggressive action to stimulate the economy and lower unemployment. The unidentified members, “felt that recent economic developments justified a more substantial move.” Stocks edged higher since this showed Wall Street that QE3 is not off the table.
Market Outlook- Confirmed Rally!
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 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.