Wednesday, May 23, 2012

Stocks Race off the Lows as European Bank Recapitalization Rumors Fuel Rally

A better than expected new home sales failed to spark a rally in the markets as traders turned once again to the European situation as a reason to sell the market. Sellers were in control for much of the day as the European situation remains dire. In particular is the situation going on in Greece and the run on banks taking place with the fear of leaving banks with extremely low levels of capital. Rumors began to float in the market regarding a plan being hatched to recapitalize all of Europe’s banks. Such a plan was certainly seen as a viable plan saving the European Union for now. Volume rose across the day as support at the 200 day is clear for now and a rally to push back up into the 50 day seems likely. Day three of the attempted rally appears to be headed for confirmation. Let’s not get ahead of ourselves as we have had quite the destruction over the past month. The current market looks eerily similar to last year’s where we experienced wild swings in the market. This market is going to fool many here. If this market is going to follow last year’s path we are going to see this market whipsaw many of its participants. The rally off the October 2011 wasn’t going to be easy to handle and neither is the aftermath. INTC and MSFT were two big losers on the day for the NASDAQ as DELL earnings helped send both stocks lower. DELL was hit after it missed earnings and was a complete and utter disaster of an earnings release. Sellers took to the stock and were relentless and with sympathy so did INTC and MSFT. All three stocks were weighing heavily on the NASDAQ, but were unable to hold it back from closing positive. Europe is such an annoying thing to talk about, but it dominates the news media. The best thing that can happen in terms of the US Dollar is to see the EURO collapse. Germany is single handedly holding up the entire currency and without the country the EURO would have already been torn apart. At the moment the US dollar is trading like the EURO is about to head to the toilet to be flushed away. Thus, we get lower commodity prices including lower gold and silver prices. More importantly energy and food prices are coming down as well which can only help our economy. Selfishly the EURO can’t break up soon enough! Continue to stay disciplined despite the market environment!

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