Monday, February 13, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets opened higher on Monday after the Greek parliament approved the closely contested austerity measures for their second bailout. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line. Looking forward, the S&P 500 has done a great job staying above its Q4 2011 high (~1292) and now has its sights set on its 2011, high near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above 1292 and then its 200 DMA line.
Greece Approves Austerity Measures, Japan’s Economy Shrinks, & Q4 Earnings Are Strong:
On Sunday, Greece’s parliament approved the closely contested austerity package for their second bailout from the EU/IMF. On Monday, Japan said its economy fell by -0.9% last year which was their first full year contraction since the Great Recession in 2009! The country was hurt by a confluence of factors: waning growth from the developed world, floods in Thailand, a strong yen, and the Fukushima earthquake in March of 2011. Separately, Q4 earnings remain strong which has been a strong catalyst for the recent rally in risk assets. So far, 63% of the 352 S&P 500 companies that have reported earnings topped estimates so far which bodes well for the ongoing economic recovery.
Market Outlook- New Rally Confirmed
Nearly all risk assets are extended by any normal measure and are due for a pullback to consolidate their recent gains. The key is to ascertain the “health” of the pullback to see if it is a short pause in a new uptrend or the beginning of a new downtrend. Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (1292). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!