Market may be overextended and pausing for next leg of the rally.
The stock market gave back some of last week gains as poor economic data decreased bullish trading sentiment. Stocks lost luster after a gap up in the early part of the session and continued to lose ground throughout the day. What appeared to be a strong negative day due to a sharp decrease in advancing vs. declining issues turned out to be a marginal loss for the major averages. We expected a distribution day but more rally fading is possible if economic data continues to come in negative or more problems from Europe occur.
The Institute for Supply Management’s purchasing managers index dropped to 51.3 last in March 2013 compared with 54.2 in February. The data helped keep stocks negative but traders were bullish toward the end of the session and buying on dips in the next few days could pay off mid month. The bearish outlook isn’t unwarranted either since equities are in our lower bound range. The lack of follow through today suggests the market is overextended from the exhaustion it took to get to the new highs. Out outlook is neutral for the next few days as we look for buying opportunities.
U.S. Stock Market Major Index Statistics for April 1, 2013:
DJIA 14,572.85 -5.69 -0.04%
NASDAQ 3,239.17 -28.35 -0.87%
S&P 500 1,562.17 -7.02 -0.45%