Stocks End Near Lows; After Strong Open


Friday, July 6, 2010
Stock Market Commentary:

For the most part, the major averages marked Day 1 of a new rally attempt but ended well off their earlier highs, after a disappointing report from the service sector dragged stocks lower. As expected, Monday’s volume totals were reported higher on the NYSE and the Nasdaq exchange compared to Friday’s pre-holiday levels. Advancers led decliners by a 10-to-9 ratio on the NYSE but trailed by a 1-to-2 ratio on the Nasdaq exchange. There were only 8 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the 5 issues that appeared on the prior session. Meanwhile, new 52-week lows outnumbered new 52-week highs on the NYSE and the Nasdaq exchange. As leadership evaporated in recent sessions, in this commentary it was repeatedly noted – “Without a healthy crop of leaders hitting new highs it is hard for the major averages to sustain a rally.”

Strong Start; Weak Finish:

US stocks opened higher after strong gains from Asia and Europe sparked optimism that an oversold technical bounce may occur. Interestingly, the benchmark S&P 500 index rallied righ up the 1040 area before encountering resistance and closing near its lows for the day. It is important to note that for most of 2010, the 1040 area has been important support and has now become resistance. That said, the bears remain in control until that the S&P 500 closes above that important level.  Economic news was less than stellar, the ISM service index grew at a slower than expected rate in June which leds many to question the health of the ongoing global economic recovery.

Market Action- In A Correction:

The market remains in a correction, which emphasizes the importance of raising cash and adopting a strong defensive stance until a new follow-through day emerges. For the past several weeks, 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. In addition, their 50 DMA lines may continue to act as stubborn resistance. It was also recently noted that the NYSE Composite and the benchmark S&P 500’s 50 DMA lines sliced below their respective 200 DMA lines, an event known by market technicians as a “death cross” which usually has bearish implications. Trade accordingly.

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