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Market Outlook

The popular averages closed well to the upside on Tuesday. Pressure from institutions selling stocks to raise cash for the Alibaba IPO ended late morning when the window was closed. Producer prices were unchanged in August. Wednesday afternoon the FOMC will report on the monetary policy meetings held this week. Meanwhile, the prices of crude oil and gold rose on Tuesday.

   In the American automaker sector on Tuesday, General Motors (GM +0.2%) rose after announcing a cutback at its Russian plant and expansion at a Missouri plant. Ford (F +0.3%) rose after scheduling an investors’ conference for September 29. Tesla Motors (TSLA +2.7%%) gained after ISI Group late Monday initiated coverage with a Buy rating and $320 price target. Early Tuesday, Global Equities Research advised buying TSLA on any weakness, since they believe the fundamentals are still strong and intact. They’ve given it an Overweight rating and $385 price target. Late in the afternoon Monday, the Massachusetts Supreme Court issued a ruling that Tesla must be allowed to sell and service its cars directly to consumers, rather than through franchised dealerships. SolarCity (SCTY –0.3%) which has relationships with Tesla, fell despite announcing an improved solar power system for business customers.

   Above is my 3-month chart of the S&P 500 exchange traded fund (SPY). It was soaring in February following a January pullback. After a new high was recorded in early April, another drop occurred as newsletter writers were warning people of a bubble that could burst. That April drop beneath the 50-day moving average was quickly erased. Money moving out of stocks and into bonds led to more tests of that moving average before a nice rise to record highs commenced.

   The down-thrust amid high trading volume on July 31 shoved the SPY beneath its 50-day moving average. That caused my outlook arrows to briefly retreat to neutral. During the first week of August the price move alternated each day with the net result a slight gain and repainting my weekly arrow green. On both August 14 and 15 the SPY closed virtually at its 50-day MA. That allowed my monthly arrow to join my weekly arrow. The sharp move above that level on August 18 sounded the all-clear for all of my time frames. The emphatic bounce above the 50-day MA on Tuesday was encouraging.

DISCLAIMER: Our commentaries are provided as general information and not investment recommendations. You are responsible for your own investment decisions. Our opinions are based on historical research and data believed to be reliable. There is no guarantee that results will be profitable. We are not responsible for errors or omissions. We may hold positions in vehicles that are mentioned.

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