Tuesday, January 10, 2012
Stock Market Commentary:
Stocks and a slew of other risk assets rallied on Tuesday as Q4 earnings season officially begins. 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 (shown above). Looking forward, the next area of resistance remains Q4’s highs (which is where the market is right now ~1292) and then 2011 highs near 1370. In addition, the bulls remain in control as long as the benchmark S&P 500 trades above its 200 DMA line.
Earnings Season Begins & Small Business Optimism Rises!
Stocks opened higher on Tuesday as Q4 earnings season kicked into gear. Remember, in addition to analyzing the companies numbers (sales and earnings) it is also very important to see how the stock reacts to the news. There have been many examples were the companies numbers are horrid but the stock gaps up and charges higher for the next few quarters and the converse is also true. We also tell our clients that price is primary and everything else (even earnings) is secondary. Investors were also happy to see that for the second consecutive month, small-business optimism rose in the U.S. The National Federation of Independent Business Optimism Index rose to 93.8 in December which is 1.8 points higher than November’s reading and 5.7 points higher than September 2011. Elsewhere, wholesale inventories corrected in November to 0.1% which was down from October’s reading of +1.2%.
Market Outlook- New Rally Confirmed
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. 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!