Downtrend Is Broken!

Tuesday, May 31, 2011
Stock Market Commentary:

Stocks and a host of commodities rallied as traders returned from a long holiday weekend in the U.S. Other capital markets rallied on Monday after Europe made progress on talks for another Greek bailout. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly.  From our vantage point, the market is back in a confirmed rally now that support (multi-month upward trendline and 50 DMA line) was defended in May.

Greek Bailout & Economic Data Lifts Futures

On Monday, U.S. markets were closed in observance of Memorial Day but other markets across the world were open. The “big” news that helped lift a slew of so-called “risk-assets” (i.e. stocks and commodities) occurred when European officials agreed to another Greek bailout. This sent the euro, and equity futures, surging before Tuesday’s open. In other news, economic data from Asia, Europe, and Canada did not disappoint. Inflation slowed in much of Europe while German unemployment fell, both healthy events for the troubled euro zone. However, not all the news was positive. Denmark’s economy entered a recession after GDP fell -0.5% in Q1. Denmark has now joined Portugal as the only other European nation to be in a recession.  Elsewhere, Canada’s GDP expanded at a 3.9% annualized rate in the first quarter which was nearly double the US’s 1.8% rate but fell short of the 4% expected on the Street. In other news, the U.S. housing market officially is in a double-dip recession as home prices fell another -4.2% in Q1 after falling –3.6% in Q4 2010.

Market Outlook- Market In A Confirmed Rally

From our point of view, the market is back in a confirmed rally now that all the major averages are back above their respective 50 DMA lines and downward trendlines. Since the beginning of May, we have urged caution as the major averages and a host of commodities began selling off. However, the fact that the pullback was shallow and the market found support at its 50 DMA line in late May, suggests higher, not lower, prices lie ahead.  The next level of resistance is the 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.

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