Monday, 12.14.09

Market Commentary:

The major averages edged higher on Monday after Abu Dhabi announced it would bail out Dubai World and Exxon Mobil Corp (XOM -4.31%) announced plans to buy XTO Energy Inc. (XTO +15.35%) for $31 billion. Volume, an important indicator of institutional sponsorship, was reported higher than Friday’s totals on the NYSE and on the Nasdaq exchange which was a healthy sign. Advancers led decliners by nearly a 3-to-1 ratio on the NYSE and by about a 2-to-1 ratio on the Nasdaq exchange. There were 51 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the total of 25 issues that appeared on the prior session. New 52-week highs substantially outnumbered new 52-week lows on the NYSE, yet the leadership was less substantial on the Nasdaq exchange.

Dubai Gets Bailed Out!

Overnight, Abu Dhabi reassured investors and said it will not let state-owned Dubai World go under. On November 25, 2009 Dubai World, parent of Nakheel, said that it would have trouble meeting its debt obligations. This sent world markets tumbling as investors were concerned that other entities may default which will add to the $1.7 trillion of credit losses and asset writedowns posted since the financial crisis began in 2007. Last week, several credit agencies downgraded and cited their dismay regarding much of the developed world’s credit ratings. The rating agencies are concerned that lackluster economic growth coupled with massive deficit spending will lead to future defaults.

Multi Billion Dollar Merger!

Exxon Mobil gapped down and closed below its 200 day moving average (DMA) line on monstrous volume after the company announced plans to buy XTO Energy. Exxon’s sales and earnings have steadily plunged over the past four quarters as oil prices continue trading significantly below its record high of $147.27 a barrel on July 11, 2008. The XTO buyout was a way for the company to grow even as crude oil continues trading nearly -50% below it’s record high. Elsewhere, Citigroup Inc. (C -6.33%) gapped down after striking a deal with the government to repay $20 billion in bailout funds.

Price & Volume Action:

Looking at the recent action in the market, the Dow Jones Industrial Average and benchmark S&P 500 index enjoyed their best close of the year as they continue flirting with important resistance levels (10,500 and 1,115 respectively.). The major averages continue acting well as they remain perched just below resistance (their respective 2009 highs) and above their respective 50-day moving average lines. Both these factors are considered healthy and bodes well for this 8-month (41-week) rally. It was also encouraging to see the Nasdaq close above 2,200 which has served as formidable resistance over the past few months. A slew of economic data is slated to be released this week and, as always, it will be very important to see how the market reacts to that news.