Stocks Drift Lower After Blasé G-20 Meeting

Monday, June 28, 2010
Stock Market Commentary:

The major averages ended lower after the G-20 pledged to cut deficits in order to help stabilize the global economy and US consumer spending and personal income rose. The current rally is under pressure after the major averages fell back below their respective 200 DMA lines and suffered a series of ominous distribution days. On Monday, volume totals were reported lower on the NYSE and the Nasdaq exchange compared to Friday’s levels which were inflated due to the annual re-balancing in the small cap Russell 2000 Index. Decliners led advancers by a 20-to-17 on the NYSE and a 16-to-11 ratio on the Nasdaq exchange. There were only 15 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the 9 issues that appeared on the prior session. Leadership has evaporated, and without a healthy crop of leaders hitting new highs it is hard for the major averages to sustain a rally. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed on the Nasdaq exchange.

G-20 More Rhetoric, Less Action:

Over the weekend, G-20 leaders met in Toronto and pledged to cut their soaring deficits but failed to reach an agreement on an international bank tax. Advanced G-20 economies have agreed to cut their deficits by nearly -50% over the next three years in order to stabilize their debt-to-output ratios by 2016. Leaders said nations can move at their own pace and also pledged to fulfill existing stimulus plans. Before Monday’s opening bell, the Commerce Department said consumer spending rose +0.2% which topped the Street’s estimate. Elsewhere, personal incomes rose +0.4% and the savings rate jumped to the highest level this year.

S&P 500 Down -7.4% in Q2:

For the quarter, the benchmark S&P 500 is poised for a -7.4% decline which, barring some unforeseen event, will snap a four-quarter winning streak. The S&P 500 index rose +9.2% during the first four months of 2010 before reaching an interim high of 1219 on April 26. Since then, the popular index plunged -12% on concern Europe’s debt crisis may derail the economic recovery.

Market Action- Rally Under Pressure:

Technically, the fact that the Dow Jones Industrial Average, S&P 500, Nasdaq Composite and NYSE Composite all closed below their respective 200-day moving average (DMA) lines last week which bodes poorly for the current rally. Additionally, this unanimously ominous action suggests the market may retest its recent lows. Looking forward, the 50 DMA line may act as stubborn resistance and this month’s lows should act as support. Since the June 15, 2010 follow-through day (FTD), this column has steadily noted the importance of remaining very selective and disciplined because all of the major averages are still trading below their downward sloping 50-day moving average (DMA) lines. It is also worrisome to see the 50 DMA line already slice below the 200 DMA line on the NYSE. This event is known by market technicians as a death cross and usually has bearish implications. Trade accordingly.

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