Monday, November 21, 2011
Stock Market Commentary:
The market is back in a correction after all the major averages sliced below their respective 50 DMA lines on Monday. A slew of risk assets were smacked after the super-committee failed to curb the $15T deficit and debt woes spread in Europe. 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, not stand in the way of them. 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.
Super Committee Fails To Cut Deficit and Spanish Bonds Surge!
Over the weekend, a 12-member super committee failed to accomplish one simple goal: cut $1.2 trillion from the $15 trillion national debt! Unfortunately, leaders on both sides of the aisle are responsible for the short coming which is note ideal considering the U.S’. credit was downgraded in August due to its massive (and growing) debt. Since the government failed to make a deal to curb its debt we would not be surprised to see another rating agency “cut” U.S.’ credit rating even further. A deal needed to be made by Monday since it would take 48 hours of congressional review before Wednesday’s deadline. Spain appears to be the next European domino to fall as it struggles to stay afloat.
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. It is also worrisome to see several former leaders implod in heavy volume. The two generals that were left: AAPL & GOOG are now encourntering serious distribution (heavy volume selling) which bodes poorly for the bulls. Technically, the market is back in the middle of its August- October range (1100-1230) after a bear (1074 low) 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!