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Stock Market Outlook for March 29, 2012

Upcoming US Events for Today:

  1. Weekly Jobless Claims will be released at 8:30am.   The market expects Initial Claims to show 350K versus 348K previous.   Continuing Claims are expected to show 3385K versus 3352K previous.
  2. Third Estimate of Fourth Quarter GDP will be released at 8:30am.   The market expects no change at 3.0%.

 

Upcoming International Events for Today:

  1. German Unemployment rate for March will be released at 3:55am EST.   The market expects no change at 6.8%.
  2. Euro-Zone Consumer Confidence for March will be released at 5:00am EST.   The market expects –19, no change from the previous report.
  3. China Business Condition Survey for March will be released at 9:35pm EST.

 

Recap of Yesterday’s Economic Events:

Description Actual Forecast Previous
EUR French Gross Domestic Product (QoQ) 0.20% 0.20% 0.20%
EUR French Gross Domestic Product (YoY) 1.30% 1.40% 1.40%
EUR Italian Business Confidence 92.1 91.5 91.7
GBP Gross Domestic Product (QoQ) -0.30% -0.20% -0.20%
GBP Gross Domestic Product (YoY) 0.50% 0.70% 0.70%
GBP Current Account (Pounds) -8.5B -8.4B -10.5B
GBP Total Business Investment (QoQ) -3.30% -5.60% -5.60%
GBP Total Business Investment (YoY) 1.60% -1.90% -2.00%
USD MBA Mortgage Applications -2.70%   -7.40%
EUR German Consumer Price Index (MoM) 0.30% 0.30% 0.70%
EUR German Consumer Price Index – EU Harmonised (YoY) 2.30% 2.30% 2.50%
EUR German Consumer Price Index (YoY) 2.10% 2.20% 2.30%
EUR German Consumer Price Index – EU Harmonised (MoM) 0.40% 0.40% 0.90%
USD Durable Goods Orders 2.20% 3.00% -3.60%
USD Cap Goods Ship Nondef Ex Air 1.40% 0.90% -3.00%
USD Durables Ex Transportation 1.60% 1.70% -3.00%
USD Cap Goods Orders Nondef Ex Air 1.20% 1.50% -3.70%
USD DOE U.S. Distillate Inventory -711K -500K 1763K
USD DOE U.S. Gasoline Inventories -3537K -1550K -1214K
USD DOE U.S. Crude Oil Inventories 7102K 2550K -1162K
USD DOE Cushing OK Crude Inventory 1043K   -176K
JPY Large Retailers’ Sales 0.20% -0.30% -1.20%
JPY Retail Trade s.a. (MoM) 2.00% 0.00% 3.10%
JPY Retail Trade (YoY) 3.50% 1.40% 1.80%

 

The Markets

Market Close % Change Expected ST Low Expected ST High
Dow Jones Industrial Average (^DJI) 13,126.21 -0.54% 12,862.83 13,211.86
Dow Jones Transportation Average (^DJT) 5,258.13 -0.34% 5,110.20 5,315.28
Dow Jones Utility Average (^DJU) 454.18 -0.88% 451.01 457.19
S&P 500 (^GSPC) 1,405.54 -0.49% 1,353.70 1,406.96
S&P/TSE Composite (^GSPTSE) 12,413.86 -0.78% 12,372.55 12,699.18
NASDAQ Composite (^IXIC) 3,104.96 -0.49% 2,934.22 3,092.04
Austrian Traded Index (^ATX) 2,164.87 -1.13% 2,149.59 2,228.19
French CAC 40 (^FCHI) 3,430.15 -1.14% 3,414.39 3,559.18
German DAX (^GDAXI) 6,998.80 -1.13% 6,755.01 7,112.99
UK FTSE 100 (^FTSE) 5,809.00 -1.03% 5,831.87 5,948.50
Swiss Market Index (^SSMI) 6,250.40 -0.30% 6,110.68 6,314.86
Brazilian IBOVESPA (^BVSP) 65,079.00 -1.45% 65,534.45 67,754.79
Mexico’s IPC (^MXX) 38,910.68 -0.12% 37,741.05 38,580.34
Amsterdam Exchange Index (^AEX) 325.62 -1.02% 322.51 333.87
Shanghai – SSE Composite Index (000001.ss) 2,284.88 -2.65% 2,164.50 2,446.96
New Zealand NZX 50 INDEX GROSS (^NZ50) 3,486.51 0.07% 3,306.29 3,501.68
China HANG SENG INDEX (^HSI) 20,885.42 -0.77% 20,770.45 21,522.51
Korea KOSPI Composite Index (^KS11) 2,031.74 -0.39% 1,997.16 2,041.89
Tokyo NIKKEI 225 (^N225) 10,182.57 -0.71% 9,403.86 10,142.63

 

Markets traded lower on Wednesday as a report on Durable Goods Orders for the month of February came in below expectations, reigniting concern that the economy might not be as robust as has been anticipated.   Commodities traded firmly lower with the CRB Commodity index shedding 1.26%.   Markets in the US inherited a negative bias following significant declines in China, which saw the Shanghai Stock Exchange lose 2.65% in one of the largest declining sessions thus far this year.   Strength in Chinese markets have been a factor in the strength in markets in the US since the year began as benchmarks such as the Shanghai Composite looked set to break its almost year-long slide.   The change of trend in Chinese equity markets could be indicative of a change in trend in US indices, which have been the star performers amongst worldwide equity benchmarks.

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Wednesday’s miss in Durable Goods Orders is just the latest in a series of economic reports as of lately that have come in below expectations.   Manufacturing, Housing, and Consumer Sentiment are all some of the categories of economic reports that have missed expectations in just the last couple of weeks, surprising analysts that had expected improvement over previous reports.   These economic surprises are picked up in the Citigroup Economic Surprise Index, which topped out at the beginning of February, precisely around the time when key cyclical sectors of the market (Industrials, Energy, and Materials) started to underperform the equity benchmarks.   This is a great leading indicator to future direction in the market, often moving up ahead of the market and down prior to a peak, just as we are seeing now.   The conclusion is that analyst expectations remain too high, which implies that current valuations observed in equity markets are also too high.   A correction appears inevitable.

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Despite the negative action on Wednesday, market activity obeyed major moving averages, supporting the original trend, for now.   The S&P 500 index (both capitalization weighted and equally weighted), the Dow Jones Industrial Average, and the Dow Transports all found support at their 20-day moving average, implying continued strength in the short-term.   Bond prices, as derived from the long-term treasury ETF (TLT), found resistance at the 20-day moving average, confirming the short-term weakness in bond prices.   Should this intermediate moving average fail as support for major equity indices, or fail as resistance for bond prices, the long awaited correction could be expected to play out.   The 20-day moving average now holds even further significance as it has now caught up to the long-term trendline that began in October of last year, as indicated on the chart of the S&P 500 Equally Weighted index.   This long-term trendline is also part of a more ominous pattern defined by a rising wedge, which is a bearish formation as market activity corners itself as it moves higher, unable to attain any significant momentum the higher the index moves.   According to theory, upon breakdown of this bearish pattern, a retracement, or correction, back to where the pattern started is to be expected.  In this case, the pattern started at the October lows at 1075 for the S&P 500.   Now it seems rather far fetched that we could see a giveback of the entire market run over the past six months, but should economic fundamentals deteriorate to the point of significant concern, it is not out of the realm of possibility.   We’ll just have to take it one step at a time when the breakdown is finally realized.

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With economic data providing the impetus for the market selloff, should it be expected that this trend of economic misses will continue into April?   The answer is “yes”.   ZeroHedge.com published an article suggesting that "unseasonably warm temperatures have lifted the level of nonfarm payrolls by 70,000-100,000 as of February" implying that the upcoming report will not be as strong as current expectations as seasonal adjustments catch up.   The article can be found at the following link: http://www.zerohedge.com/news/bad-nfp-print-days-away-goldman-says-warm-weather-added-70000-100000-jobs-now-its-payback-time.   We published something suggesting a similar scenario earlier this week as the market shows a tendency to top out at the beginning of April coming out of warmer than average winters.   Markets typically trade lower in April and May as seasonal adjustments catch up and the weather benefit that was a factor during the typically cold months no longer proves to be a factor.   This negative trend in April and May is consistent with election year tendencies as well, which also result in market peaks in the month of April.   And just to add to the possible conspiracy, years ending with “2” also show steep declines following the month of March.   Everything is lining up to suggest weakness around the corner, something that is not seasonally typical during average years for the month of April, which is usually one of the best months for equities.

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Sentiment on Wednesday ended bearish at 1.02.

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Sectors that Moved the Market

Sector % Price Change % Volume Change
Energy Sector (XLE) -1.25% 19.67%
Basic Materials Sector (XLB) -1.39% 150.14%
Financial Sector (XLF) 0.25% 24.06%
Health Care Sector (XLV) -0.21% 67.41%
Consumer Discretionary Sector (XLY) -0.86% 48.78%
Industrials Sector (XLI) -0.96% 133.84%
Technology Sector (XLK) -0.36% 0.80%
Utilities Sector (XLU) -0.83% 44.83%
Consumer Staples Sector (XLP) -0.24% 6.84%

 

Cyclical sectors (Energy, Materials, and Industrials) led the market lower on Wednesday, while defensive sectors (Health Care and Staples) outperformed broad market indices.   This suggests a risk-off day and just adds to the apparent risk-off month of March that has been apparent in the underperformance of key cyclical sectors of this market.

 

S&P 500 Index

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
1389.01 1397.28 1405.46 1413.73 1421.91

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Chart Courtesy of StockCharts.com

Support & Resistance Analysis MACD Analysis MACD vs. Signal RSI Analysis Stochastic (Fast) Analysis
Broke Lwr Support (2) Positive/Decreasing Bearish MA Crossover Above 50 Bearish Crossover
Current Day Candlestick Prior Day Candlestick Candlestick Analysis
Black Candlestick Black Candlestick Bearish

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TSE Composite

Support 2 Support 1 Pivot Point Resistance 1 Resistance 2
12269.73 12341.79 12426.92 12498.98 12584.11

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Chart Courtesy of StockCharts.com

Support & Resistance Analysis MACD Analysis MACD vs. Signal RSI Analysis Stochastic (Fast) Analysis
Broke Lwr Support (2) Bearish Centerline Crossover Below/Widening Bearish Centerline Crossover Neutral
Current Day Candlestick Prior Day Candlestick Candlestick Analysis
Black Candlestick Black Candlestick Bearish

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