Stocks Rally On Healthy Economic Data

Euro- Finding Support Near Recent Lows
Euro- Finding Support Near Recent Lows

Thursday, February 16, 2012
Stock Market Commentary:

Stocks and a slew of other risk assets were quiet on Thursday as the latest round of stronger than expected economic data was released. From our point of view, the major averages confirmed their latest rally attempt on Tuesday 1.3.12 which was Day 9 of their current rally attempt. It was also encouraging to see the S&P 500 break above its downward trendline and its longer term 200 DMA line. Looking forward, the S&P 500 has done a great job staying above its Q4 2011 high (~1292) and is flirting with 1356 which corresponds with July’s high. The next level of resistance is 2011’s high just above 1370. The bulls remain in control as long as the benchmark S&P 500 trades above 1292 and then its 200 DMA line.

Healthy Economic Data Helps Stocks:

Stocks were relatively quiet on Thursday even though the latest round of economic data was rather healthy in the U.S. The big news was that initial jobless claims fell sharply last week to 348,000, which was lower than the Street’s estimate for 365,000. The report also showed that continuing claims slid to 3.43 million from 3.53 million. A separate report showed that housing starts rose 699,000 last month which also topped the Street’s estimate for 671,000. Building permits rose slightly to an annualized rate of 676,000, which just beat the Street’s estimate for 675,000. The Philadelphia Fed Manufacturing Index rose more than expected to 10.2 in February. Finally, news on the inflation front was mild. The producer price index rose by +0.1% in January which was less than the average estimate for an increase of +0.3%. However, core prices jumped to +0.4% which was double the average estimate.

Market Outlook- Confirmed Rally

Nearly all risk assets are extended by any normal measure and are due for a pullback to consolidate their recent gains. The key is to ascertain the “health” of the pullback to see if it is a short pause in a new uptrend or the beginning of a new downtrend. Risk assets (stocks, FX, and commodities) have been acting better since the latter half of December. Now that the major U.S. averages scored a proper follow-through day the path of least resistance is higher. Looking forward, one can err on the long side as long as the benchmark S&P 500 remains above support (1292). Leadership is beginning to improve which is another healthy sign. Now that the 200 DMA line was taken out it will be important to see how long the market can stay above this important level. If you are looking for specific help navigating this market, feel free to contact us for more information. That’s what we are here for!
 

Similar Posts

  • Day 1 Of A New Rally Attempt

    Looking at the market, Monday marked Day 1 of a new rally attempt which means that as long as Monday’s lows are not breached, the earliest a possible follow-through day could emerge will be this Thursday. However, if Monday’s lows are taken out, then the day count will be reset and the chances for a steeper correction increase markedly. It is also important to see how the major averages react to their respective 50 DMA lines. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is key.

  • Week In Review: Leaders Get Hit As Market Churns

    Initially, the market rallied on the jobs report but sellers quickly emerged which put pressure on the market. It was disconcerting to see a several high profile leaders such as Apple Inc. (AAPL -1.61%) and Netflix (NFLX -3.04%) get smacked on Friday. Apple, one the strongest stocks since the March lows, triggered a technical sell signal when it violated its well defined 8-month upward trendline and its 50 DMA line on Friday. This was the first time since the March low that Apple closed below support (its upward trendline and 50 DMA line). Volume surged as the stocks fell which indicated that large institutional investors were unloading their positions, not Aunt Mary or Uncle Bob. The dollar rallied sharply after the jobs report was released which put pressure on a slew of commodities, mainly gold. Gold plunged sharply today which dragged a slew of gold related stocks. Remember that gold has been one of the strongest performing groups in recent weeks and now that it has fallen, a new group will need to emerge to carry this market higher. That coupled with the recent questionable action in the major averages and the dearth of leadership suggests this rally is “under pressure” which means caution is advised.

  • Stocks Inch Higher As Fed Holds Rates Steady

    Wednesday, April 28, 2010 Stock Market Commentary: The major averages ended higher after the Federal Reserve held rates steady near historic lows and Spain’s debt was downgraded. Volume totals on Wednesday were reported lower compared to Tuesday’s totals which suggested large institutions were not aggressively buying stocks. Advancers led decliners by a 11-to-8 ratio on the NYSE and by a 14-to-13 ratio…

  • Week In Review: Bears Are Getting Stronger

    Bears Are Getting Stronger The stock market is getting weaker, not stronger. Over the past few months we have been letting our readers know about all the bearish signals that were emerging on our radar. Notwithstanding more easy money from the Fed/other central banks, the market appears to be forming a major top. Leadership has narrowed substantially…