Friday, February 25, 2011
Stock Market Commentary:
Stocks ended the week lower as geopolitical woes continued in the Middle East and both oil and gold enjoyed healthy gains over the past few weeks and months. The current crisis in Libya remains in flux which is putting upward pressure on gold and oil and downward pressure on equities. The benchmark S&P 500 is up 100% from its March 2009 low, and still about -14% off its all time high from October 2007. On average, market internals remain healthy as the major averages pull back towards their respective 50 DMA lines to consolidate their recent gain.
Stocks were closed in the U.S. on Monday in observance of President’s Day. Overseas, stocks fell as thousands of Libyan’s protested Muammar al-Gaddafi’s 40+ year reign. On Tuesday, stocks were smacked as oil prices rose and economic data was mixed. On the economic front, U.S. confidence rose in February to the highest level in three years as the global economy continues to recover. The S&P Case-Shiller index showed home prices fell -0.4% on an adjusted month-to-month basis.
Stocks slid on Wednesday as WTI crude oil surged above resistance of its latest base and briefly hit $100/barrel. Elsewhere, the National Association of Realtors said existing home sales rose by +2.7% to a 5.36 million annual rate, exceeding the 5.22 million median forecast last month. However, the report showed that the median home price fell to the lowest level in almost nine years as the number of “distressed sales” (i.e. foreclosures and other distressed properties) soared to a 12-month high.
Thursday & Friday’s Action: Jobless Claims, Durable Goods, New Home Sales, & GDP:
Stocks ended mixed on Thursday after the Labor Department said weekly jobless claims fell by -22,000 to a seasonally adjusted 391,000 last week. The drop was seen as a net positive for the economy and the ailing jobs market. Durable goods orders topped estimates which also bodes well for the economic recovery. However, new home sales missed estimates which suggests the sluggish housing market has yet to recover. New home sales tanked -12.6% to a lower-than-expected annual rate of 284,000 units. Before Friday’s open, the government said GDP was revised down to +2.8%, lower than the 3.3% forecast. However, stocks shrugged off the news as geopolitical woes eased a bit in the Middle East.
Market Action- Rally Under Pressure; Week 26 Ends
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines recently which is a healthy sign. From our point of view, the market remains in rally-mode until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks were a bit extended in recent months and this pullback (back to the 50 DMA lines) is very healthy as it shakes out the weaker hands and restores the the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.