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Stocks Rally On Economic Data

Gold Hit A New 2011 Low & Is Officially In A Bear Market

Gold Hit A New 2011 Low & Is Officially In A Bear Market

Thursday, December 29, 2011
Stock Market Commentary:

Stocks opened higher after the latest round of economic data was announced and an Italian bond auction came in below the worst case scenario that many pundits were worried about. From our point of view, Thursday marked Day 7 of the current rally attempt which means the window is now open for a new follow-through day to emerge [as long as Tuesday’s (12/20/11) lows are not breached]. The benchmark S&P 500 index continues flirting with positive territory for the year and its 200 DMA line.

Italian Bond Auction, Jobless Claims, & Pending Home Sales:

On Thursday, stocks opened higher as investors digested a host of economic data. Italy managed to sell 7.02 billion euros ($9 billion) of bonds which missed their target but borrowing costs fell which helped allay concerns regarding the health of the Italian government to finance the world’s fourth largest debt-load. In the U.S., the labor department said weekly jobless claims rose by 15,000 to a seasonally adjusted 381,000 but remained under the closely followed 400,000 level for the fourth straight week. The report was a little worse than the Street’s expectations for 375,000. Elsewhere, pending home sales rose by +7.5% in November which easily topped the Street’s estimate and is the highest level in 19 months.

Market Outlook- In A Correction

Risk assets remain under pressure as gold continues trading below its 200 DMA line and other capital markets continue to fall. We find it very disconcerting to see other (leading) risk assets flirt with fresh 2011 lows in recent weeks. China’s Shanghai Composite (normally a leading risk on/off indicator) has fallen below its October low and hit a new 2.5 year low. The euro, which is strongly correlated to U.S. stocks and other risk assets also took out its October low on Tuesday (12/13) which is not ideal. Meanwhile, Gold sliced below its longer term 200 DMA line on on Wednesday (12/14) for the first time since August 2008 (1-month before Lehman failed) and remains below that critical level. Other risk assets such as Oil, Silver, Copper, etc are also under pressure which suggests the global risk off trade is getting stronger.  As an easy reference point, if the benchmark S&P 500 would simply fall to its Oct low, that would be 1074! Sometimes, caution is king.

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). Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. 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!

 

Stocks Soar After Worst Thanksgiving Week Since 1932!

SPX- Day 1 Of A New Rally Attempt

SPX- Day 1 Of A New Rally Attempt

Monday, November 28, 2011
Stock Market Commentary:

Risk assets surged across the world as rumor spread that EU officials were working on a new super deal to save the ailing Euro. Monday marked Day 1 of a new rally attempt which means the earliest a possible follow-through day (FTD) could emerge will be Thursday, providing Monday’s lows are not breached. However, if Monday’s lows are breached, the day count will be reset and and odds favor lower, not higher prices will follow. Further, since 2008 the percentage of failed FTD’s has surged due in part to the massive volatility we have seen in the major averages.

EU Leaders Trying To Save The Euro, IMF To Loan Italy Money, & OECD Says Euro-zone is Already in a Recession:

Stocks surged on Monday after rumors spread that European officials were working on a new deal which would save the ailing Euro from imploding.   Germany and France are trying to work and a more rapid solution for their fiscal woes. In Italy, the newly appointed prime minister is working towards a new plan that will help shore up the country’s finances. A spokesperson for the IMF confirmed that they are working with the Italian government to avoid the country defaulting on its debt. The IMF is ready to loan Italy up to 600 billion euros ($798 billion) after Italian daily newspaper La Stampa broke the story. Separately, the Organisation for Economic Co-operation and Development (OECD) said the euro zone already entered a mild recession due to their massive debt crisis and the U.S. may be close to entering one as well.

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).

Market Outlook- Market In A Correction

The benchmark S&P 500 (SPX) is still in negative territory for the the year which is not ideal for the bulls. 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). 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!

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Stocks Flirting With Support

Thursday, June 16, 2011
Stock Market Commentary:

Stocks and a slew of commodities were quiet on Thursday as the major averages remain on track for a 7th consecutive weekly decline. Remember, it is quite normal to see markets “bounce” after a steep decline. Going forward, the key is to study the “bounce” and wait for a powerful up day (follow-through day) to confirm a new rally attempt. Thursday marked Day 1 of a new rally attempt for the benchmark S&P 500, the Dow Jones Industrial Average, and the small-cap Russell 2000 index. Therefore, as long as Thursday’s lows are not breached, the earliest a proper FTD could emerge would be Tuesday. However, if Thursday’s lows are breached, the day count will be reset. It is important to note that until a new FTD emerges, the bears remain in control of this market. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly as all the major averages and a slew of key commodities are down significantly from their May 2011 highs.

Jobless Claims & Housing Starts Top Estimates:

Economic data was mixed on Thursday. The Labor Department said jobless claims slid -16,000 last week to 414,000 (the prior week was revised up +3,000 to 430,000). The closely followed four-week average, which smooths out the data, was unchanged at 424,750.  Elsewhere, housing starts topped estimates and rose by +3.5%, following a revised -8.8% drop in April. This was the first stronger than expected reading for the ailing housing market in recent memory. May’s annualized rate was +0.560 million units which topped the Street’s projection for +0.547 million units. However, the reading fell -3.4% compared to the same period last year. Shortly after Thursday’s open, the Philly Fed Survey missed estimates and fell into negative territory. The index came in at negative -7.7 which was the first negative reading since September 2010 and below the Street’s estimate for a positive +7.

Market Outlook- Market In A Correction:

From our point of view, the market is back in a correction now that all the major averages closed below their respective 50 DMA lines and important upward trendlines. Since the beginning of May, we have urged our clients and readers to be extremely cautious as the major averages and a host of commodities began selling off. Looking forward, the next level of resistance for the major averages is their recent lows (i.e. 1294 in the S&P 500) and then their respective 50 DMA lines. The next level of support is their longer term 200 DMA lines and then their March 2011 lows.

For those of you that are interested, the S&P 500 hit a new 2011 high on May 2, 2011. Two days later, on Wednesday, May 4, 2011, we turned cautious and said “The Rally Was Under Pressure” (read here). Then on Monday, 5.23.11, we changed our outlook to “Market In A Correction” (read here). On Monday, June 6, 2011 we pointed out that the S&P 500 violated its 9-month upward trendline (read here) and reiterated our cautious stance. We have received a lot of “thank you” emails for being “spot on” in our approach. We are humbled by your presence and very thankful for your continued support. If you are looking for specific help navigating this market, please contact us for more information.

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Week In Review: Stocks Confirm New Rally

The major averages confirmed a new rally attempt and ended higher for the week as investors digested the latest round of earnings and economic data. However, this was the second consecutive week that volume, a critical component of institutional demand, receded as the major averages advanced. Normally, one would like to see volume expand as the market rallies and contract when the market declines. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

On Monday, stocks scored a follow-through day (FTD) after the Group of 20 largest industrial nations agreed to maintain their economic stimulus package as the global economy continues to recover. It is important to note that this market remains very strong. On every rally since the initial lows in March 2009, each pullback has been less than -8% and the bulls have promptly showed up to quell the bearish pressure and send stocks higher. The latest correction began on October 28, 2009 and ended on November 9, 2009 when this rally-attempt was confirmed. To avoid any confusion, the official status of the market changed from “rally attempt” to “confirmed rally.” Now that the market is back in a confirmed rally, growth investors have a green light for buying stocks when they trigger fresh technical buy signals and break out of sound bases. The stock market remains strong as long as the US dollar continues to fall and the global economic stimulus package continues.

On Tuesday, stocks ended mixed as investors digested the latest round of economic data. The National Association of Realtors said that home prices fell in 8out of every 10 US cities last quarter. Sellers continue to lower prices to attract buyers which has caused the price of the average home to decline to$177,900 which is -11% below Q3 2008’s levels. Distressed sales, a.k.a. deeply discounted sales, made up 30% of all deals according to their data. The good news in the report was that home sales rose and two dozen cities saw home prices actually climb! Remember, the ideal scenario for the real-estate market to recover will be higher home prices coupled with more sales.

On Wednesday, stocks rallied and sent the benchmark S&P 500 Index to a fresh 2009 high. China reported that its industrial production surged thanks in part to strong demand. This bodes well for the global economic recovery and helps allay concern that the 8-month rally in global equities is exaggerated. Elsewhere, the Fed signaled they do not plan on raising rates any time soon. This also removed a ton of pressure on those that subscribe to the notion that the stock market’s 8-month advance was due to a massive government induced liquidity driven rally. The underlying notion is that banks are able to borrow money near record lows and then use that money however they may see fit.

On Thursday, the stock market and a slew of commodities sold off as the US dollar rallied. The US dollar rallied against 15 of 16 major currencies after the Federal Deficit soared to a new record of $176.4 billion  in October. Stocks sold off after Hewlett-Packard (HPQ) announced plans to acquire 3Com (COMS). 3Com surged a whopping +31% on the news and enjoyed its single largest advance since 2007 on the $2.7 billion deal. This helped send a slew of computer networking stocks higher.

Stocks shook off negative news regarding consumer sentiment and ended higher on Friday. So far, over 80%of S&P 500 companies that reported Q3 results have topped estimates which has helped the market hold up rather well considering that profits were negative for a record ninth consecutive quarter. What does all this mean for growth investors? Be patient and continue to watch for leading stocks to breakout of sound bases. Do not force a trade and let the market come to you; i.e. do not chase. It is also important to remain cognizant of what is working in this environment: mainly buying very liquid large cap leaders as they bounce off their 50-day moving average line or breakout of sound bases. Some of those leaders include: Apple Computer (AAPL), Amazon (AMZN), Priceline.com (PCLN), Google (GOOG), and Baidu Inc. (BIDU). The action in these names have served as a great proxy for the overall rally which began in March 2009. Jesse Livermore’s timeless advice is true once gain, “Follow The Leaders.”