Stocks Plunge Below 200 DMA line On Heavy Volume

Thursday, May 20, 2010
Market Commentary:

Stocks got pounded on Thursday and sliced below their respective 200 DMA lines after a series of lackluster economic reports were released. Volume totals were reported higher on the Nasdaq and the NYSE compared to Wednesday’s total which was not an encouraging sign. Decliners trumped advancers by over a 10-to-1 ratio on the NYSE and over an 11-to-1 ratio on the Nasdaq exchange. New 52-week lows outnumbered new 52-week highs on both major exchanges. There were 0 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 3 issues that appeared on the prior session.

Tepid Economic Data & Contagion Fears Lower Economic Outlook:

All the major averages sliced below their respective 200 DMA lines as European contagion woes spread and economic data from the US was less than stellar. The two primary European concerns of the day came from Greece and Germany. Several Greek unions went on strike which sparked fear that the $1 trillion bailout was not enough to help allay their concerns. Investors are concerned that the new trading regulations in Germany could spread to other developed nations. In the US, Thursday’s economic data added to the worries about the economic recovery. Before Thursday’s open, the Labor Department said initial jobless claims grew by +25,000 to +471,000 in the week ended May 15. This was higher than the economists estimate for a decline of -4,000. In addition, the Conference Board’s index of leading economic indicators slid in April for the first time since March 2009. It was also interesting to see the euro rally even as equities and a slew of commodities got smacked on Thursday.

Market Action- In A Correction:

At this point, all the major averages sliced and closed below their respective 200 DMA lines which suggests lower prices will likely follow. Furthermore, the NYSE composite undercut its Thursday, May 6, 2010 low (Flash crash) which bodes poorly for this market. In addition, the major averages are now down over -10% from their late April highs which is the first time that occurred since the March 2009 low. On Wednesday, all the major averages undercut their recent lows which means the day count was reset and we are now looking for Day 1 of a new rally attempt to occur. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.

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