This morning, the major stock market indexes are having another early bounce higher. Over the past six trading sessions the major stock indexes have closed in negative territory. The last time that the major stock indexes accomplished this feat was in February 2009. This was just prior to the first quantitative easing(QE-1) or U.S. Treasury purchasing program by the Federal Reserve. At this time, we all know that the Federal Reserve is ending their current $600 billion QE-2 program at the end of June 2011. Over the past week, we have seen the major stock indexes rally intra-day only to sell off into the close. This type of action at the end of the trading day is a sign of market weakness.
These markets are very oversold at this point. The S&P 500 Index has declined lower by nearly 7.0 percent since the May 2011 high. At this time, this appears to be just a normal correction, however, all of the problems that caused this decline still persist and this is a reason for caution. Traders and investors will continue to focus on all the problems in Europe, Asia, and the United States as long as the major stock indexes remain weak. Many investors believe that the Federal Reserve(U.S. Central bank) is out of ammunition for the near term and cannot reload new stimulus until the markets stage a true correction. We shall see soon enough as the chatter of QE-3 is being talked about by every investors at this time.
Should the major stock indexes rally today it looks to be just an oversold bounce. It is always very important to see a secondary higher close, or what we would call a follow through day. Traders should watch the leading stocks for clues to see if the markets can stage a multi-day bounce. Some of these market leading stocks include Apple Inc.(NASDAQ:AAPL), Netflix Inc.(NASDAQ:NFLX), Exxon Mobil Corp.(NYSE:X), and J.P. Morgan Chase & Co.(NYSE:JPM). When these stocks do well it is a good sign that the major stock indexes will also do well. It is simply a game of follow the leader. Lets see if this market can finish the day in the green by the close before we say this market has found a near term low. Remember, one day does not make a trend.
Nicholas Santiago
InTheMoneyStocks.com
