Monday, May 24, 2010 Stock Market Commentary: The major averages ended lower as the dollar rallied after European debt woes continued to spread. As expected volume was lighter compared to Friday’s heavy options expiration levels. Decliners led advancers by more than a 23-to-15 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. New 52-week lows outnumbered new 52-week highs…
Stocks took a heavy beating on Thursday, sending all the major averages below their respective 200 DMA lines on heavy volume. Stocks ended higher on Friday after the S&P 500, Russell 2000 and Nasdaq Composite all shook out below their May 6, 2010 (flash crash) low. For the week, all the major averages suffered tremendous losses and fell over -10% from their late April highs, which is the first time a pullback of that magnitude has occurred since the March 2009 low. The fact that the market rallied on Friday technically marked Day 1 of a new rally attempt which means the earliest a proper follow-through day (FTD) could occur would be Wednesday, providing Friday’s lows are not breached. However, if at anytime, Friday’s lows are breached, then the day count will be reset. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.
At this point, all the major averages sliced and closed below their respective 200 DMA lines which suggests lower prices will likely follow. Furthermore, the NYSE composite undercut its Thursday, May 6, 2010 low (Flash crash) which bodes poorly for this market. In addition, all the major averages are now down over -10% from their late April highs which is the first time that occurred since the March 2009 low. On Wednesday, all the major averages undercut their recent lows which means the day count was reset and we are now looking for Day 1 of a new rally attempt to occur. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.
All the major averages sliced below their recent lows which means the day count is reset and we are now looking for Day 1 of a new rally attempt to occur. At this point, the 200 DMA line (i.e. 40 week-moving average) remains support for all the major averages while the 50 DMA line is resistance. If the 200 DMA line is breached, on a closing basis, then odds favor lower prices will follow. The converse is also true. Until either event occurs, we should expect this sideways action (between the 50 & 200 DMA line) to continue. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.