Market update June 11, 2010
Once again the equity markets have put together a multi day rally to work off extreme oversold conditions. This has been the pattern for the past several weeks but the trend still remains down. The 20 day moving average has served as resistance on the previous two rally attempts and the ESM10 has neared this level once again.
Recall that one function of moving averages is to give investors and traders quick glance status checks on the current trend. With the 20 EMA clearly trending down, we know the trend remains down and has been since early May. After the big break down on May 6, the ESM10 rallied to the 20 EMA at 1170. The next rally up to the 20 EMA found the moving average at 1104 and it currently resides at 1076.50. This simply confirms the trend is down even though the momentum or pace of the down move is decreasing.
It continues to be a nervous market that is overly sensitive to news announcements. The market is set to gap down this morning in large part due to a much weaker than expected retail sales report. Some of the talking heads from the Fed have been on the tape recently defending the economy and arguing that it will not slip into a double dip recession. While historically the odds of a double dip are low, the economic growth is likely to remain subdued for an extended period of time. The popping of the credit bubble is very different than a garden variety recession and we expect at least a decade of slow and choppy economic activity at a minimum. There is still too much debt that must be worked off and that is a slow and painful process.
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