The benchmark S&P 500 index and Dow Jones Industrial average snapped a 6-week rally after encountering resistance near their 2012 highs. The underlying notion that has helped stocks rally has been further easing from global central banks. Some market participants are hoping that the tepid economic and earnings data we have seen recently will force at least one of the prominent central bank’s hand into another round of easing in the near future. At this point, this appears to be a normal correction however, if the selling intensifies one should quickly adjust your portfolio accordingly.
Monday-Wednesday’s Action- Stocks Hit Resistance:
Stocks were relatively quiet on Monday after a report in a German magazine said the ECB would set a limit for sovereign debt yields for certain debt-laden countries. The report also said that the ECB would step up and buy the troubled bonds if their spreads over safe-haven German bunds exceeded a certain level. Aetna (AET) said it would acquire Coventry Health Care (CVH) for $5.7 billion in cash and stock. Stocks in Europe and Asia were mixed to slightly lower on Monday.
Stocks fell on Tuesday from a logical area of resistance (their 2012 highs). Normally, prior chart highs serve as important levels of resistance which means it might take some “time” before the market can trade above them. However, the fact that the major averages are trading near their 2012 highs bodes well for this rally, the risk-on theme, and the general economy in general. Stocks negatively reversed on Tuesday (opened higher but closed lower) which typically means a change in trend is on the horizon- especially after a 6-week rally. Volume, an important component of institutional sponsorship, remains below average which is also normal for this time of year as most of market participants enjoy the last few weeks of the summer. At this point, we should note that the market is due for a little pullback and adjust our positions accordingly. However, if the bulls continue to send stocks higher we will be along for the ride.
Stocks ended spent most of Wednesday’s session in the red but managed to close mixed to slightly higher after the minutes of the FOMC meeting were released. The minutes showed that there definitely is a serious discussion between members regarding QE3. Fed officials mostly agreed that additional easing would be necessary and help support the anemic economic recovery if conditions deteriorated. That said, there was a general consensus on Wall Street that the fact that the Fed did not shun the idea means that QE3 will happen which bodes well for risk-on assets.
Thursday & Friday’s Action: EU Woes Resurface
Stocks opened lower on Thursday after investors digested the latest round of tepid economic data. The Labor Department said jobless claims unexpectedly rose to the highest level in five weeks. Jobless claims rose by 4,000 to a seasonally adjusted 372,000 which topped the Street’s estimate for a reading of 365,000 new filings. The one somewhat positive data point in the current batch of economic data was that US manufacturing edged higher in August. The “flash” US manufacturing PMI index rose to 51.9 which topped the boom/bust level of 50. The news overseas was less than stellar. The data in Europe all but confirmed that the euro-zone is in their second recession in three years. Even Germany, the region’s economic powerhouse, is beginning to feel the effects of the debt crisis. Data out of China echoed a slowing, not growing economy. China’s manufacturing index slid to a nine-month low, which reiterated the notion that the global economy is slowing, not growing. Stocks were quiet on Friday after durable goods orders topped estimates in July. The two bright spots were aircrafts and automobiles. However, when you remove transportation goods, durable goods slid and missed expectations.
Market Outlook- Confirmed Rally
From our point of view, the market is in a confirmed rally which means the path of least resistance remains higher. It is encouraging to see all the major averages trade near their 2012 highs! Technically, the 200 DMA line and June’s lows are the next level of support while April’s highs are the next level of resistance for the major averages. As always, keep your losses small and never argue with the tape. If you are looking for specific help navigating this market, feel free to contact us for more information.
Stocks Snap 6-Week Rally
Friday, August 24, 2012
Stock Market Commentary:
Monday-Wednesday’s Action- Stocks Hit Resistance:
Thursday & Friday’s Action: EU Woes Resurface
Market Outlook- Confirmed Rally
Here are more articles you may like
September 4, 2024: Another Leg Down
Sellers showed up yesterday (9/3/2024), and if we weren’t convinced the recent rally attempt had
August 30, 2024 — So Long for Now, Semiconductors
Although $NVDA had a good earnings report, the stock price fell, and the $SMH and
Podcast: Swing Trading
Over the last month, our guests Michael Lamothe and Dennis Wilborn have told us a
Adam Sarhan
Claim Your Free Guide Today
Give us your email and we will give you the tools to change your life.
FREE 7 DAY EMAIL COURSE
Learn about Early Entry Points & much more...
© ChartYourTrade | Contact us: website@chartyourtrade.com
Disclaimer: All communication from ChartYourTrade is general in nature and for educational and general informational purposes only. Under no circumstance should it be considered personalized investment advice. All our work is general in nature and not specific to any one person. All the information on this site and/or that originates from us, or any of our partners or affiliates, is for educational and informational purposes only and is NOT a recommendation to buy or sell anything. To avoid any conflicts of interest, we do not have a working relationship with any of the companies mentioned in our work. Furthermore, we may have a long, short, or no position in any, or all, of the names that appear in our work and they may change at any time without notice. Investing and trading in capital markets or using margin carries a high level of risk and may not be suitable for all investors. Leverage can work against you as well as for you. Before you decide to invest or trade in capital markets you should carefully consider your investment objectives, level of experience, and risk appetite, among other factors. The possibility exists that you could sustain a loss of some, all, or more of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with capital markets, investing/trading, and seek specific investment advice from an independent financial advisor and other professionals. Remember all the information we provide is for educational and general informational purposes only and is subject to change without notice.
Charts and Data are courtesy of MarketSmith Incorporated. Join MarketSmith here.
Terms of Service