Wednesday, November 23, 2011
Stock Market Commentary:
Risk assets fell on Wednesday ahead of the Thanksgiving Day holiday as fear spread that the global economy will fall into another recession. The market is back in a correction after all the major averages sliced below their respective 50 DMA lines on Monday (11.21.11). It is also disconcerting to see that all the major averages are back in negative territory for the year which bodes poorly for the fragile economic recovery. For months, we have argued in this commentary that from our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). Finally, others are starting to take notice of this important question. Our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly. What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). At this point, the path of least resistance is lower and remains lower until one of the major averages closes above its 50 DMA line.
China’s Economy Slows, German Bond Auction Flops, & U.S. Economic Data Doesn’t Impress
On Wednesday, a slew of risk assets fell after fear spread that the global economy will fall into another recession. Overnight, China’s factory sector contracted by the most in 32 months in November as new orders fell. This sparked fresh woes that China maybe heading for a “hard” economic landing. The news from Germany also added fuel to the global recessionary fire. German manufacturing fell for a second consecutive month in November and their latest bond auction was a flop.
In The U.S., consumer confidence rose in November to 64.1 from 60.9 in October and was slightly lower than the Street’s forecast for 64.5. The Commerce Department said durable goods orders, excluding transportation, unexpectedly fell -0.7% in October after revising September’s reading down to 0.6%. Economists were expecting a flat reading for October. Finally, the Labor Department said jobless claims rose by 2,000 last week to a seasonally-adjusted 393,000. This was just above the average analyst forecast for 390,000 but remained below the closely watched 400,000 mark.
Please note that the stock market will be closed on Thursday for Thanksgiving and will be open for a 1/2 day on Friday. As a result our next market commentary will be published after Friday’s close.
Market Outlook- Market In A Correction
The latest short-lived rally (that was confirmed on October 18) ended on November 21, 2011 when all the major averages sliced and closed below their respective 50 DMA lines. Technically, the market is back in the middle of its August- October range (1100-1230) after a bear (1074-1100) and bull trap (1230-200DMA). Looking forward, this sideways action should continue until either support (1074) or resistance (200 DMA line) is breached. Therefore, we have to expect this sloppy wide and loose action to continue until the market closes above its longer term 200 DMA line. 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, feel free to contact us for more information. That’s what we are here for!