Major Head & Shoulders Top Has Formed!

Thursday, August 4, 2011
Stock Market Commentary:

The week-long sell off resumed on Thursday sending nearly every major “risk”asset lower as investors were concerned with a slowing global economy and more debt woes out of Europe. Wednesday’s lows were breached in all the major averages which means that the day count is reset and the chance of a new rally being confirmed is off the table, for now. More worrisome, the major averages are now in negative territory for the year and have sliced below support of their multi-month bases. In the case of the S&P 500, it violated the neckline of its rather large and ominous head & shoulders top. The bears remain in control of this market until the major averages close above their respective moving averages (50 & 200). All near term levels of support are breached for the major averages and the next level of resistance are their respective 200 DMA lines. In our weekly institutional note from last week- we said, “it feels like 2008” and this week’s ominous action confirms that view.

E.U. Debt Woes Spread, Jobless Claims, And Economic Jitters Grip Wall Street:

Before Thursday’s open, a slew of data from Europe renewed fears of a global economic slowdown and the possibility of the euro falling apart. In Europe, both the European Central Bank (ECB) and Bank of England left rates unchanged which was largely expected. The ECB said it will resume buying bonds from debt-stricken nations to help alleviate the pressure. However, that did little to calm investors’ fears. In the U.S., the Labor Department said weekly jobless claims were little changed, falling by -1,000 to a seasonally adjusted 400,000. This was just below the Street’s estimate of 405,000. The prior week’s figure, which briefly dipped below the closely watched 400,000 mark,was revised up to 401,000 which bodes poorly for  Friday’s jobs report. Economists believe that payrolls rose +85,000 in July according to Reuters after only rising +18,000 in June.

Weekly Losses (So Far):

For those of you that are interested: As of Thursday’s close:

1.) The Dow Jones Industrial Average Is Down – 759.56 pts or -6.26%

2.) The Nasdaq Composite Plunged: -200 pts or -7.26%

3.) The S&P 500 Tanked: -92.21 pts or 7.14%

4.) The Russell 2000 Shed: -70.23 pts or -8.81%

All these losses have occurred on very heavy volume, erased the gains for the year, and sent the major averages plunging below several key technical levels. Trade accordingly.

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 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.

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