Stocks Rally On E.U. Optimism

Tuesday, September 27, 2011
Stock Market Commentary:

Stocks rallied for a third straight day as optimism spread that EU leaders will help prevent a Greek default. Nearly every day since mid-August, we told you that the major averages were simply rallying (on light volume) towards resistance (50 DMA line) and unless they broke above resistance, the sideways/range bound action would continue. Now, the major averages are simply bouncing off support and unless support is violated (SPX 1101-1123) then, by definition, we should expect this sideways action to continue.

 

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Stocks Rally On Greek Optimism But U.S. Economic Data Remains Weak:

German Chancellor Angela Merkel and Greek Prime Minister George Papandreou met on Tuesday to discuss the ongoing debt problem. Papandreou said he can “guarantee” that Greece will deliver on all of its austerity pledges which sounds greet on paper but we have yet to hear a “CEO or Head of State” speak honestly about “the worst case scenario.” In the U.S. the economic data was less than stellar. The S&P  Case-Shiller index which measures home prices gained for a fourth consecutive month to +0.9% in July amid peak buying season. The report easily topped the Street’s estimate for a decline of -4.5%, according to a Reuters. However, the Conference Board said consumer confidence plunged to 45.4 in September which missed the Street’s estimate for 46.0.

 

Market Outlook- Rally Under Pressure:

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 several distribution days emerge or 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.


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