Mixed Day on Wall Street

SPX- Downward Trendline
SPX- Downward Trendline

Tuesday, November 29, 2011
Stock Market Commentary:

Risk assets were mixed on Tuesday as the world waited to see if EU leaders could pull another rabbit out of their hat to try and curb their swelling debt crisis. Tuesday marked Day 2 of a new rally attempt which means the earliest a possible follow-through day (FTD) could emerge will be Thursday, providing Monday’s (Day 1) lows are not breached. However, if Monday’s lows are breached, the day count will be reset and and odds favor lower, not higher prices will follow. It is important to note that every major rally in history began with a FTD but every FTD does not lead to a new major rally. In addition, since 2008 the percentage of failed FTD’s has surged due in part to the massive volatility we have seen in the major averages.

EU Leaders Try To Save The Euro, Fitch Changes Outlook For U.S. Credit Rating To Negative, & U.S. Economic Data Mixed:

After Monday’s close, Fitch, one of the three most popular rating agencies, downgraded their outlook for the U.S. credit rating to negative and said that the downgrade was due to the failure of the super committee in congress to pass a bill to curb the 15T deficit. Fitch gave the U.S until 2013 to curb their ballooning budget deficit or lose their AAA status. Remember there are two components to a country’s ratings. First, the actual rating and second, the outlook. All Fitch did was curb their outlook, not the actual rating.

Elsewhere, European officials are still trying to pass a new super deal to save the euro from imploding. Finally, the latest round of economic data in the U.S. was mixed. The S&P Case/Shiller index, which measures home prices across the country, slid to -0.6% in September which is missed the Street’s forecast for “unchanged.” Meanwhile, the Conference Board said U.S. consumer confidence jumped after falling to a 2.5 year low in November to 56.0 which easily topped the average estimate of 44.0.

Market Outlook- Market In A Correction

The benchmark S&P 500 (SPX) is still in negative territory for the the year which is not ideal for the bulls. For months, we have argued in this commentary that from our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). Finally, others are starting to take notice of this important question. Our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly.  What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). Looking forward, this sideways action should continue until either support (1074) or resistance (200 DMA line) is breached. Therefore, we have to expect this sloppy wide and loose action to continue until the market closes above its longer term 200 DMA line. Our longstanding clients/readers know, we like to filter out the noise and focus on what matters most: market action. 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!

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