Day 2; Selling Continues

Wednesday, August 10, 2011
Stock Market Commentary:

Stocks fell on Wednesday giving back most of Tuesday’s gains. Tuesday marked Day 1 of a new rally attempt which means that as long as Tuesday’s lows are not breached, the earliest a possible follow-through day (FTD) can emerge will be Friday. However, if Tuesday’s lows are breached, then all bullish bets are off the table and the day count will be reset. It is also important to note that some of the stock market’s largest moves (both “up” and “down”) occur during corrections/bear markets. Since we are clearly in the middle of a severe correction (or nascent stages of a bear market) it is imperative to play strong defense until a new rally is confirmed. It is also important to be on the look out for very attractive rallies which are also known as “sucker rallies” because they suck you in and then resume another leg lower (i.e. Tuesday-Wednesday’s action). To be clear, the bears remain in control of this market until the major averages close above their longer term 200 DMA lines or a new FTD emerges.

Wholesale Trade Eases & Risk Off Trade Resumes:

On Wednesday, stocks were clobbered as fear spread that the European debt crisis would worsen. Costs to protect the government debt of Greece. Italy, France, and Spain surged which illustrates how weak confidence is for those nations. In the U.S., the economic news was very light. Inventory growth in the wholesale sector slowed in June to +0.6% which was the lowest rate of 2011 and lower than the prior month’s reading of +1.8%.  The recent “risk-off” trend appears to be in full force as so-called risk assets fell (stocks and commodities) while safe havens (i.e. bonds and gold) marched higher. Gold has surged over $150/ounce in the past few sessions and briefly topped $1800 which clearly illustrates how “scared” investors are across the globe.

Market Outlook- Market In A Correction

The latest action in the major averages suggests the market is back in a correction as all the major averages remain below key technical levels. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the recent action suggests caution is paramount at this stage until all the major averages rally back towards their respective 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.

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