Day 2 Of A New Rally Attempt; Stocks Negatively Reverse


Monday, February 8, 2010
Market Commentary:

The major averages negatively reversed and ended lower on Monday as concern spread that some European governments will struggle to fund ballooning budget deficits. Volume was lower than the prior session on the NYSE and the Nasdaq exchange. Decliners led advancers by nearly a 2-to-1 ratio on the NYSE and the Nasdaq exchange. There were only 5 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the 3 issues that appeared on the prior session. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed by a small margin on the Nasdaq exchange.

Soaring Debt Drags Stocks Lower

Stocks opened higher on Monday but turned lower after concern spread that several European countries may default on their debt. Greece, Spain and Portugal are the three primary suspects for the latest sovereign debt crisis. The primary concern is that these countries will need outside assistance to stay afloat as they emerge from the worst recession since WWII. Meanwhile, the Congressional Budget Office expects America’s debt to reach +65% of GDP this year which would still be below the +77% of GDP the European Commission expects for Germany, the +80% expected in the U.K. and Japan’s whopping +180%!

Market Action: In A Correction

Looking at the market, Monday marked day 2 of a new rally attempt which means that as long as Friday’s lows are not breached this rally attempt remains intact and the earliest a possible follow-through day (FTD) could emerge will be on Wednesday. However, if Friday’s lows are breached then the day count will be reset and a steeper correction may unfold. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is king.

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