EU Debt Woes Send Stocks Lower

Monday, November 29, 2010
Stock Market Commentary:

The euro tanked overnight as concern spread that their debt problems will spread beyond Ireland. The rally which began on the September 1, 2010 follow-through day ended on Tuesday. November 16, 2010 as stocks and commodities plunged in heavy trade.  All the major averages took out their latest rally attempt’s lows which means the day count was reset, except for the Nasdaq composite.

EU Debt Woes Send Euro Plunging:

The euro plunged to a fresh multi month low and traded below its 200 DMA line as concern spread that EU’s debt woes will spread. It is important to note that Hungary’s benchmark stock market index plunged more than -20% from its 2010 peak which is the common definition of  a bear market. Their bonds also sank as concern spread that Europe’s debt crisis is spreading east. Hungary was the first European Union nation to receive an International Monetary Fund bailout during the 2008 global economic crisis after the government’s budget deficit exploded. The US dollar rallied on the news which sent a host of dollar denominated assets (i.e. stocks and commodities) sharply lower.

Market Action- Week 3 In A Correction:

The Dow Jones Industrial Average and the NYSE composite both sliced below their respective 50 DMA lines on Monday which is not a healthy sign. The 12-week rally ended on Tuesday, November 16, 2010 after the major averages plunged in heavy volume back down towards their respective 50 DMA lines. In recent weeks, we have repeatedly written about how the major averages were experiencing wide-and-loose action after a big move and made it very clear that that was not a healthy sign. At this point, we are looking for a new rally to be confirmed with a new follow-through day before taking any new positions. Caution and patience are key at this point. Trade accordingly.

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