Weak Economic Data; Stocks Still Below 50 DMA Line

Wednesday, May 25, 2011
Stock Market Commentary:

Stocks and a host of commodities bounced on Tuesday after Monday’s strong sell off. So far, the old adage, “Sell in May and Go Away,” appears to be working brilliantly.  From our vantage point, the market rally remains under pressure due to the lackluster action in the major averages and several leading stocks.

OECD; Global Recovery Still In Jeopardy, Durable Goods Miss Estimates & Home Prices Fall:

Before Wednesday’s open, the Organisation for Economic Cooperation and Development (OECD) lowered their 2011 Economic Outlook and said risks to the global recovery remain significant. The organization said that both the US and Japan “have yet to produce credible medium-term plans” to stabilize their debt which could flare up and curtail the global recovery at any moment. Other risks include: periphery debt in Europe and an economic slowdown in China/Asia. The report recommends that the Federal Reserve should raise rates while the European Central Bank should hold rates steady until the periphery debt issues are resolved. Angel Gurria, the secretary general of the OECD, said, “A key message of this economic outlook is that there is no room for complacency. The crisis is not over yet. It has just changed its skin.” The report believes that the global economy will expand by +4.5% in 2011 and 2012.

In other news, durable goods orders missed estimates and plunged last month which bodes poorly for the ongoing economic recovery. In other news, the FHFA’s home price index fell another -0.3% in March. This was the fifth consecutive monthly decline and ominous news for the ailing housing market.

Market Outlook- Market In A Correction

From our point of view, the market is in a correction as a new downtrend has formed and the 50 DMA line is broken for many of the major averages.  Since the beginning of May, we have urged caution as the major averages and a host of commodities began selling off. Looking forward, the next level of support is the 9-month upward trendline and the next level of resistance is the 50 DMA line and then the 2011 highs. If you are looking for specific help navigating this market, please contact us for more information.

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