Day 3 Of Rally Attempt; Stocks Back To Top Of Week-Long Trading Range

Thursday, August 11, 2011
Stock Market Commentary:

The see-saw rally continued on Wall street as stocks surged on Thursday bouncing from the bottom of their week-long trading range. Jobless claims stayed below the closely watched 400,000 mark and topped estimates which helped spark the strong move. 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.

Technically, as long as Tuesday’s lows hold- there is a strong chance that the markets may be forming a short-term low. However, there is no rush to buy ahead of a FTD because doing so increases the odds of failure. 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.

French Banks In Trouble, Possible Short Selling Ban, & Jobless Claims Ease:

On Thursday, rumors spread in Europe that a major French bank may become the next Lehman brothers. Rumors spread that Société Générale was on the brink of failure which sparked fear that France may lose its AAA credit rating. The French bank’s CEO went on the offensive defending his bank, denied the rumors, and highlighted its financial strength. Rumors also spread that France and Italy may impose a temporary ban on short selling. U.S. stocks opened higher after the Labor Department said weekly jobless claims slid -7,000 to 395,000, in the first week of August. That was the lowest number since early April, below the Street’s forecast for 405,000, and below the closely followed 400,000 level.

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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