S&P 500- Upward Trendline Broken!


Monday, June 06, 2011
Stock Market Commentary:

Stocks and a slew of commodities ended lower on Monday as fear continued to spread that the global economy is slowing.  All the major averages sliced and closed below their respective 50 DMA lines in early June which is not ideal. This lackluster action, especially after a large move, suggests more sluggish action lies ahead. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly.  From our vantage point, the market is back in a correction as the major averages are below their respective 50 DMA lines and multi-month upward trendlines.

$2 Trillion Wiped Out Since May 2011:

Since the beginning of May, Bloomberg.com estimates more than $2 trillion has been wiped out from the value of global equities due in part to a slew of disappointing economic data. China’s Shanghai index has fallen over -20% from its recovery high which technically defines a bear market. All the major U.S. averages have sliced below their short term levels of support and just violated their 9-month upward trendlines (shown above). The benchmark S&P 500 index is down nearly -6% from its three year high of 1370 and is currently trading at 12.3 times estimated earnings which is the lowest valuation since September 2010.

Market Outlook- Market In A Correction

From our point of view, the market is back in a correction now that all the major averages closed below their respective 50 DMA lines and important upward trendlines. Since the beginning of May, we have urged caution as the major averages and a host of commodities began selling off. The next level of resistance for the major averages are their respective 50 DMA lines then their 2011 highs. The next level of support is their longer term 200 DMA lines. If you are looking for specific help navigating this market, please contact us for more information.

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