Volatile Week On Wall Street


Friday, April 30, 2010
Stock Market Commentary:

Stocks experienced their most volatile week since February as investors digested a slew of economic, earnings, and political data. So far bredth has been very strong as advancers steadily outnumber decliners and new 52-week highs continue to trump new 52-week lows. It is important to note that a healthy crop of new leaders making new highs bodes well for any market rally.

Monday & Tuesday; Stocks Tank:

Stocks ended mixed to mostly lower on Monday after weakness emerged in the closely followed financial and housing sectors. The major averages ended near their intra-day lows after several high profile financial and housing stocks suffered distribution.

On Tuesday, stocks tanked after S&P Rating Services lowered Greek’s debt to junk and cut Portugal’s rating two notches. This sent European stock market’s plunging to their worst single day decline since November and sparked concern that other European countries will need to be downgraded as well. On the home front, the much anticipated Goldman Sachs (GS) testimony began on Capital Hill. Several Goldman executives, including Fabrice Tourre the young trader at the center of the mess, spent their day testifying on Capital Hill. Mr. Tourre read a prepared statement on his role marketing the Abacus collateralized debt obligation (CDO) at the heart of the investigation.

Wednesday- Friday; Stocks Rally:

Stocks edged higher on Wednesday after the Federal Reserve held rates steady near historic lows, and Spain’s debt was downgraded. Around 2pm EST, the Federal Reserve held rates steady and reiterated their stance to keep their benchmark interest rate near zero for an “extended period” as the economy continues to improve. The Fed said, “Economic conditions, including low rates of resource utilization, subdued inflation trends, and stable inflation expectations, are likely to warrant exceptionally low levels of the federal funds rate for an extended period.” Futures trading currently show that there is a 15% chance that the Fed will raise rates by their August meeting. In March, the odds were closer to 50%

Stocks rallied on Thursday, erasing most of their losses from earlier in the week after the euro stabilized, the latest multi billion dollar acquisition was announced, and several high profile companies reported stronger than expected results. Shares of Palm Inc. (PALM) surged over after Hewlett-Packard Co. (HPQ) acquired the company for around $1.2 billion. Stocks opened higher on Friday after the government said Q1 GDP grew at a 3.2% as consumer spending rose.

Market Action- Rally Under Pressure:

It is important to note that the major averages have been steadily rallying since early February and a pullback of some sort should be expected. Tuesday marked the latest distribution day since the rally was confirmed on the March 1, 2010 follow-through day (FTD). According to the paper, there are 5 distribution days for the NYSE and the S&P 500, 4 for the Dow, and 3 for the Nasdaq in recent weeks. This puts some pressure on this 9-week rally, but has yet to cause any technical damage.

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