Debt Woes Smack The Euro

Tuesday, July 12, 2011
Stock Market Commentary:

Futures were down before Tuesday’s open but pared their losses after the trade deficit surged to the highest level in three years! Stocks are under pressure but the next important line in the sand is the 50 DMA line. Once the major averages violate their respective 50 DMA lines, the rally will end and the bears will have regained control of this market. The next level of resistance is their respective 2011 highs.

Debt Concerns Grow & Trade Deficit Soars!

Before Tuesday’s open, the euro was smacked as fresh debt woes surfaced throughout Europe and the debt/deficit situation in the U.S. remains unresolved. Euro zone finance ministers promised a more flexible approach to deal with Greece and other troubled nations. However, markets across the world did not believe their rhetoric. A newspaper report showed that six Spanish banks failed the EU stress tests which are slated to be released on Friday.Elsewhere, the U.S. trade deficit soared to a 3 year high in May thanks in part to lower exports. The Commerce Department said the deficit surged +15.1% to +50.2 billion in May which is the largest imbalance since October 2008.

Fed Minutes & Ireland’s Debt Slashed To Junk!

At 2pm EST, the minutes of the Federal Reserve’s June meeting were released and showed that Fed officials did not rule out QE3. Stocks sold off after a short-lived initial bounce on the news. Shortly after the Fed minutes were released, Moody’s rating agency downgraded Ireland’s debt rating to junk which sent stocks lower. Finally, Alcoa (AA) officially kicked off earnings season after Monday’s close when they released their Q2 results. Needless to say, it will be interesting to see how the major averages react to earnings over the next few weeks.

Market Outlook- Uptrend Under Pressure:

The last week of June’s strong action suggests the market is back in a confirmed rally. As our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. That said, the current rally is under pressure as investors patiently await earnings season and continue to digest the latest economic data. Until the major averages violate their respective 50 DMA lines on a closing basis, the market deserves the bullish benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.

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