Monday, October 31, 2011
Stock Market Commentary:
Stocks soared in October and enjoyed one of their strongest monthly gains in ages! Stocks opened October lower but bottomed on October 4, 2011 (the same day the Fed began operation twist) and spent the next three weeks enjoying monstrous gains in anticipation of a Greek haircut. At the end of October, European leaders finally were able to make a deal regarding Greece’s onerous debt levels and agreed to leverage their bailout plan 4 to 5 times in order to handle other debt laden states. The S&P 500 (SPX) is fractionally lower for 2011 while the Nasdaq composite and Dow Jones Industrial Average (DJIA) are modestly higher. Stocks confirmed their latest rally attempt on Tuesday (10.18.11) day 12 of their rally attempt when the SPX and NYSE composite scored proper follow-through days (FTD). It is important to note that every major rally in history began with a FTD but not every FTD leads to a new rally. That said, one can err on the bullish side as long as the major averages remain above their 50 DMA lines.
Stocks End October On A Low Note, Bank of Japan Intervenes To Curb Yen
Risk assets fell on Monday after the Bank of Japan intervened in the currency market to curb their red-hot yen ahead of the G-20 meeting later this week. October will go down in history as the best month for the DJIA since 2002 and the best month for the benchmark SPX since 1991! From the 10/4 low-10/31’s close: SPX jumped +16.6%, NDX +15.5%, DJIA +15%, & R2K (RUT) vaulted +23.15%!
At this point, the market is clearly extended to the upside and due for a pullback. They key is to ascertain the health and duration of the pullback to see if it is an orderly (i.e. normal) pullback or something more severe. With this market and the VIX near 30, anything is possible. From our point of view, the bulls remain in control as long as the SPX stays above the middle of its bullish double bottom pattern; 1230.
Market Outlook- Confirmed Rally:
The major U.S. averages are back in a new confirmed rally and broke above the mid-point/resistance of their 6-week bullish double bottom base. The benchmark S&P 500 index scored a proper FTD on Tuesday, October 18, 2011, i.e. Day 12, when it rallied over 2% on heavier volume than the prior session. In addition, it is important to note that the bulls scored a victory since many of the major averages closed above their downward sloping 50 DMA lines for the first time since late July! 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, please contact us for more information.