Monday, November 28, 2011
Stock Market Commentary:
Risk assets surged across the world as rumor spread that EU officials were working on a new super deal to save the ailing Euro. Monday marked Day 1 of a new rally attempt which means the earliest a possible follow-through day (FTD) could emerge will be Thursday, providing Monday’s lows are not breached. However, if Monday’s lows are breached, the day count will be reset and and odds favor lower, not higher prices will follow. Further, since 2008 the percentage of failed FTD’s has surged due in part to the massive volatility we have seen in the major averages.
EU Leaders Trying To Save The Euro, IMF To Loan Italy Money, & OECD Says Euro-zone is Already in a Recession:
Stocks surged on Monday after rumors spread that European officials were working on a new deal which would save the ailing Euro from imploding. Germany and France are trying to work and a more rapid solution for their fiscal woes. In Italy, the newly appointed prime minister is working towards a new plan that will help shore up the country’s finances. A spokesperson for the IMF confirmed that they are working with the Italian government to avoid the country defaulting on its debt. The IMF is ready to loan Italy up to 600 billion euros ($798 billion) after Italian daily newspaper La Stampa broke the story. Separately, the Organisation for Economic Co-operation and Development (OECD) said the euro zone already entered a mild recession due to their massive debt crisis and the U.S. may be close to entering one as well.
The latest short-lived rally (that was confirmed on October 18) ended on November 21, 2011 when all the major averages sliced and closed below their respective 50 DMA lines. Technically, the market is back in the middle of its August- October range (1100-1230) after a bear (1074-1100) and bull trap (1230-200DMA).
Market Outlook- Market In A Correction
The benchmark S&P 500 (SPX) is still in negative territory for the the year which is not ideal for the bulls. For months, we have argued in this commentary that from our point of view, the current EU bailout plan- to use leverage & add more debt to a debt crisis- is foolish at best and does not address the broader issues (i.e. the other PIIGS countries are broke). Finally, others are starting to take notice of this important question. Our job is to trade on what we see happening, not on what we think will happen. We do this by gathering the facts, interpret how the markets react to the news and trade accordingly. What we have seen from the October 4, 2011 low was simply an over sold bounce into a logical area of resistance (200 DMA line). Looking forward, this sideways action should continue until either support (1074) or resistance (200 DMA line) is breached. Therefore, we have to expect this sloppy wide and loose action to continue until the market closes above its longer term 200 DMA line. 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, feel free to contact us for more information. That’s what we are here for!