Stocks Fall Amid Fresh EU Debt Woes


Tuesday, September 7, 2010
Stock Market Commentary:

Stocks fell around the world as concern spread that the European debt crisis may worsen. The market’s internals were mixed with decliners trumping advancers but new highs leading new lows. The number of high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page were lower than the 71 issues that appeared on the prior session.

Fresh EU Debt Woes Send Stocks Lower:

Stocks were closed on Monday in observance of the Labor Day Holiday. On Tuesday, stocks slid amid fresh concerns that the EU debt crisis may derail the fledging global economic recovery. Normally, it is healthy to see the major averages pullback on light volume shortly after a new follow-through day (FTD) emerges.

Last Wednesday, the market confirmed its latest rally attempt and spent the rest of the week advancing. Therefore, a modest decline after a four day rally is considered healthy as it offers investors a chance to accumulate high ranked stocks near appropriate buy points. The Dow Jones Industrial Average fell after encountering resistance near its 200 DMA line but managed to close above its 50 DMA line. The other major averages also closed above their short term 50 DMA lines, which is an encouraging sign.

Market Action- Confirmed Rally:

Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. It was encouraging to see a flurry of high-ranked leaders trigger fresh technical buy signals and break out of sound bases in recent sessions. The next important level to watch for the major averages are their respective 200-day moving average (DMA) lines.  It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly.

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