Fed Speaks; World Listens

Wednesday, June 22, 2011
Stock Market Commentary:

Stocks and a slew of commodities opened higher in anticipation of positive comments from the Federal Reserve on Wednesday. From our point of view, the Nasdaq composite and small-cap Russell 2000 indexes both produced sound follow-through days (FTD) which confirmed their latest rally attempts on Tuesday. This healthy action suggests the bulls are now back in control of this market; as long as the 200 DMA line holds. It is important to note that every major rally in history began with a FTD but not every FTD leads to a major rally.

Home Prices Edge Higher, FOMC Meeting, & Bernanke Press Conference:

Before Wednesday’s open, the Federal Housing Finance Agency (FHFA) House Price Index (HPI) was released which showed a slight uptick in home prices. The index unexpectedly rose in April, snapping a six-month losing streak. The FHFA house price index rose +0.8% in April, following a decline of -0.4% in March. The Federal Reserve held rates steady which matched expectations and largely reiterated their recent stance on the U.S. economy and inflation.

Market Outlook- Confirmed Rally:

The market produced a sound follow-through day (FTD) on Tuesday, June 21, 2011 which confirmed the latest rally attempt. Looking forward, this rally will remain intact as long as the major averages continue trading above their respective 200 DMA lines and their recent chart lows. It was encouraging to see the bulls show up and defend the longer term 200 DMA line in the middle of June which is the latest level of support. The next level of resistance for the major averages is their respective 50 DMA lines. Trade accordingly.

For those of you that are interested, the S&P 500 hit a new 2011 high on May 2, 2011. Two days later, on Wednesday, May 4, 2011, we turned cautious and said “The Rally Was Under Pressure” (read here). Then on Monday, 5.23.11, we changed our outlook to “Market In A Correction” (read here). On Monday, June 6, 2011 we pointed out that the S&P 500 violated its 9-month upward trendline (read here) and reiterated our cautious stance. On June 21, 2011 we changed our Market Outlook to a “Confirmed Rally” after the latest FTD was produced. If you are looking for specific help navigating this market, please contact us for more information.

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