Stocks Negatively Reverse On The Week

Friday, September 2, 2011
Stock Market Commentary:

Stocks fell on Friday after the Labor Department said U.S. employers did not add any new jobs in August. The report missed estimates for +50k and bodes poorly for the ongoing economic recovery. At this point, the current rally is under pressure evidenced by several distribution days (heavy volume declines) since the latest FTD. It is important to note that even with the latest FTD, the major averages are still trading below several key technical levels which means this rally may fade if the bears show up and quell the bulls’ efforts.

Monday-Wednesday’s Action:

Stocks rallied on Monday as E.U. debt woes continued to ease and buyers continued accumulating shares as August entered its final week. Before Monday’s open, European exchanges were higher after news spread that EFG Eurobank and Alphabank, two of Greece’s troubled financial institutions, merged. The consolidation was viewed as a sign of progress toward a more stable banking system for the debt-stricken nation. Economic data in the U.S. was mixed. Personal income rose last month by +0.3%, which missed the Street’s +0.4% estimate. The “good” news was that spending jumped +0.8% which easily topped the Street’s +0.5% estimate. A separate report showed pending home sales fell in June by -1.3%, which modestly beat the Street’s estimate for a decline of -1.4%.

On Tuesday, the Conference Board’s confidence index tanked to -44.5, the weakest since April 2009, from a revised 59.2 reading in July. The sharp decline in confidence largely reflects a plunging stock market and a weakening global economy. The decline was the largest point drop since October 2008 and missed the Street’s estimate for +52. The S&P/Case-Shiller index of home values in 20 cities fell -4.5% from June 2010. Home prices, according to the index, slid -4.6% from May 2010 to May 2011, however, barely topped the Street’s -4.6% estimate.

Before Wednesday’s open, ADP, the country’s largest private payrolls company, said U.S. employers added +91,000 new jobs in August which just missed the Street’s 100k estimate. The major averages ended lower in August despite strong gains in the final week of a rather volatile and erratic month. It is important to note that the major averages are simply bouncing on light volume towards their respective 50 and 200 DMA lines which is not ideal. It will be critical to see how stocks react when they get to that important inflection point.

Thursday & Friday’s Action: Stocks Fall As Jobs Report Dissappoints:

Before Thursday’s open, the Labor Department said jobless claims fell -12,000 to a seasonally adjusted 409,000 last week. Elsewhere, the Institute for Supply Management said its manufacturing index slid to 50.6 in August which topped the boom bust level of 50 and topped the Street’s estimates for 48.5. Before Friday’s open, the Labor Department said August’s non-farm payrolls report was unchanged and the unemployment rate stayed at 9.1%. Many people blame the lackluster economic recovery on the fact that the unemployment rate remains elevated. Therefore, a weaker-than-expected reading bodes poorly for the ailing recovery.

Market Outlook- Rally Under Pressure

The major averages confirmed their latest rally attempt on Tuesday, August 23, 2011 which was the 11th day of their latest rally attempt. It is important to note that all major rallies in history began with a FTD however not every FTD leads to a new rally (i.e. several FTDs fail). In addition, it is important to note that the major averages still are under pressure as they are all trading below their longer and shorter term moving averages (50 and 200 DMA lines) and are all still negative year-to-date. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. This rally will fail if/when several distribution days emerge or August’s lows are breached. Until then, the bulls deserve the benefit of the doubt. If you are looking for specific help navigating this market, please contact us for more information.