Market Slides For The Week Ended February 10, 2012 After Reaching New Highs: Is The Rally Over?
Stock market has worst day in 2012.
The stock market closed the week on a negative note after reaching new highs earlier. The Dow Jones closed Friday, February 10, 2012 down 89 points to 12,801 and investors are looking to the future to see if the rally that began since August 2011 has ended. Negative news from a downgrade to 34 Italian banks wasn’t trumped by any other positive news today and traders may have done a bit of profit taking after the extended rally last week. Rangebound trading in the next few sessions would be healthy for the overall market to climb higher but bullishness is exceptionally high. Extreme positive sentiment doesn’t mean the rally is necessarily over but could mean the market is looking to test new ground after forming a solid base.
The NASDAQ, The Russell 2000 and Volatility
This week, Warren Buffet proclaimed stocks would do better than gold this year and the Roubini economics camp also agreed that the rally had legs. The stock market has gained popular appeal but the new highs reached early in the week were erased today. If the NASDAQ and the Russell 2000 pullback significantly past 5 percent, this could be cause for concern that the rally is nearing the end but many analysts and economists believe P/E ratios are still relatively low which makes stocks a bargain. We would agree with that conjecture but we are looking carefully at small caps, technology, volatility and how the market reacts to news from Europe to determine if equities are on the way up or down. We would not change our outlook on the economy based on the data coming in this week and expect more data points next week that show the economy is mixed-positive. The market had its worst day in 2012 so far and perhaps that’s a good thing but volatility jumped also and we will monitor the VIX closely next week.
Technical analysis notes coming this weekend!