Stocks Shrug Off Italy Downgrade

Tuesday, September 20, 2011
Stock Market Commentary:

Stocks snapped their longest winning streak since July after fresh fear regarding a Greek default resurfaced over the weekend. The major averages continued trading between support and resistance of their current base but most European markets are still near their 2011 lows. At this point, the current rally is under pressure evidenced by several distribution days (heavy volume declines) since the latest FTD. It is important to note that 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.

IMF Cuts Global Growth Forecast & S&P Downgrades Italy’s Credit & Housing Starts Fall

After Monday’s close S&P downgraded Italy’s credit rating by one notch to A/A-1 and kept its outlook on negative. On Tuesday, the IMF said the global economy will grow +4% in 2011 and 2012. This was lower than their prior forecast in June of +4.3% in 2011 and of +4.5% in 2012. The U.S. growth projection was lowered to +1.5% in 2011 from +2.5% in June. Separately, the Commerce Department said U.S. housing starts fell -5% to a three-month low of 571,000 annual rate in August.

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.