Stocks Rally As Greek Banks Consolidate

Monday, August 29, 2011
Stock Market Commentary:

Stocks rallied on Monday as E.U. debt woes continued to ease and buyers continued accumulating shares as this extremely volatile month begins its final week. The major averages are technically in a new confirmed rally which means probing the long side may be prudent, if/when high ranked stocks begin to trigger fresh technical buy signals. Even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.

E.U. Debt Woes Ease, Housing Data Still Weak, & Stocks Extend Gains

Before Monday’s open,  European exchanges were higher after news spread that EFG Eurobank and Alphabank, two of Greece’s troubled financial institutions, merged. The consolidation was viewed as a sign of progress toward a more stable banking system for the debt-stricken nation. Economic data in the U.S. was mixed. Personal income rose last month by +0.3%, which missed the Street’s +0.4% estimate. The “good” news was that spending jumped +0.8% which easily topped the Street’s +0.5% estimate. A separate report showed pending home sales fell in June by -1.3%, which modestly beat the Street’s estimate for a decline of -1.4%. It was very encouraging to see the broad based rally, which was confirmed with last Tuesday’s FTD, get stronger.

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 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.