We would like to wish all our loyal clients & readers a very Happy & Healthy 2010!

Thursday, December 31, 2009

Market Commentary:

The major averages ended lower on the last trading day of the year. Volume, an important indicator of institutional sponsorship, was reported lighter than Wednesday’s totals which indicated large institutions were not aggressively selling stocks. Decliners led advancers by nearly a 2-to-1 ratio on the NYSE and by a 9-to-5 ratio on the Nasdaq exchange. There were 24 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 18 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Economic Data- Weekly Jobless Claims:

At 8:30 AM EST, the Labor Department said initial jobless claims fell -28,000 to 452,000 in the week ending December 19. The report topped the Street’s 460,000 estimate and supports the notion that the ailing jobs market is improving. Continuing claims fell 127,000 in the December 12 week to 5.076 million. Every Thursday, the Labor Department releases the report which compiles data showing the number of individuals who filed for unemployment insurance for the first time during the prior week. Remember, the report is counter intuitive because an increasing number means more people are filing for unemployment claims and suggests a deteriorating labor market. The converse is also true, lower readings are a sign of strength. Investors tend to look at the four-week moving average because it smoothes out weekly volatility.

Performance Data For The Decade & 2009:

2000’s Performance Data:

The 2000’s will go down in history as a blasé decade for the stock market. Over the past 10 years, the major averages are actually down which is a historical anomaly. During that period, the tech heavy Nasdaq composite is the standout loser shedding a whopping -44% while the benchmark S&P 500 lost -24% and the Dow Industrials gave up -9%.

Multi Decade Consolidation:

Over the past 100 years, there have been multiple times when the stock market spent nearly two decades moving sideways before a new massive multi decade bull market was born. The first 10-year consolidation occurred between 1906-1916 and was followed by the roaring 20’s and then the Great Depression. The next notable consolidation occurred between 1966-1982 (16 years) before the massive bull market of the 1980s and 1990s was born. Are we in the middle of one of those protracted consolidations? Yes, but fortunately, our investment outlook allows us to prosper from the shorter term cyclical bull and bear markets that occur during the broader consolidation. Our investment thesis is simple: we remain flexible in our approach and constantly listen to the market by objectively analyzing price and volume.
Emerging markets enjoyed hefty gains over the last decade. Brasil’s stock market surged a whopping +301% while China’s soared +72%. Other emerging markets also enjoyed huge moves during the past 10 years as capital continues to flow into these younger and more vibrant economies.

2009 Performance:

For the year, tech-heavy Nasdaq composite led its peers, surging a whopping +45%. The small cap Russell 2000 index jumped +25%, while the benchmark S&P 500 and Dow Jones Industrial Average rose +24% and +19% respectively. Since the March lows, the Russell 2000 vaulted +85% while the Nasdaq composite surged a whopping +81%. The S&P 500 and Dow Industrials rose +70% and +64%, respectively. On a percentage basis, the past nine months have been one of the strongest in history which bodes well for the bulls.

Market Action: Price & Volume

Looking at the market, the action remains constructive. The Dow Jones Industrial Average, small cap Russell 2000 Index, S&P 500 Index and Nasdaq Composite and NYSE Composite indices are all trading just below their respective 2009 highs which bodes well for this rally. The inverse relationship with the US dollar has eased in recent weeks as both stocks and the greenback have rallied in tandem. Ideally, one would like to see leadership and volume expand over the next few weeks as the major averages continue advancing.