Tuesday, November 22, 2011
Stock Market Commentary:
The market is back in a correction after all the major averages sliced below their respective 50 DMA lines on Monday (11.21.11). A slew of risk assets were smacked after the super-committee failed to curb the $15T deficit and debt woes spread in Europe. It is also disconcerting to see that all the major averages are back in negative territory for the year which bodes poorly for the fragile economic recovery. 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). At this point, the path of least resistance is lower and remains lower until one of the major averages closes above its 50 DMA line.
U.S. GDP Grows By 2%, Down from 2.5% In Q3!
On Tuesday, stocks traded between positive and negative territory after the Commerce Department said the U.S. economy grew at a slower pace than previously expected in the third quarter. The latest revision showed the economy expanding at 2% in Q3 which was lower than the previous estimate of +2.5%. The minutes of the Federal Reserve’s latest meeting were released which larerly reiterated their recent stance: rate will remain low as the economy continues to recovery, albeit slowly. Please note that the stock market will be closed on Thursday for Thanksgiving and will be open for a 1/2 day on Friday.
Market Outlook- Market In A Correction
The latest short-lived rally (that was confirmed on October 18) ended on November 21, 2011 when all the major averages sliced and closed below their respective 50 DMA lines. Technically, the market is back in the middle of its August- October range (1100-1230) after a bear (1074-1100) and bull trap (1230-200DMA). 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!