Bulls Gobble Up Stocks As Volume Recedes

Market Commentary- Wednesday 11.25.09:
The major averages advanced on Wednesday as the greenback slid to a 14-year low against the yen after the latest round of economic data was released.  As expected, volume, a critical component of institutional demand, was lower than Tuesday’s levels ahead of the the Thanksgiving day holiday. The stock market will be closed on Thursday and is slated to close early on Friday (1pm EST) in oberservence of the holiday. Advancers led decliners by over a 2-to-1 ratio on the NYSE but trailed by a narrow margin on the Nasdaq exchange. There were 22high-ranked companies from the Leaders List making a new 52-week high and appearing on the BreakOuts Page, higher from the 12 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Weak Dollar:

Stocks rallied on anemic volume the day before thanksgiving thanks to an array of factors. First, the US dollar got smacked which helped the bulls send stocks higher. For months, we have written about the inverse relationship between the US dollar and dollar denominated assets (i.e. stocks and commodities). The dollar index lost over -1.1% which was its largest single day percentage drop in nearly four months! Wednesday’s decline put the dollar Index at a fresh 12-month low. The second factor that helped stocks advance today was a series of economic data. Home sales, jobless claims and consumer confidence were relatively healthy which helped support the notion that the economic recovery is strengthening. The other positive data point came from higher oil prices. The government said that energy demand rose for a second consecutive week (thanks to a stronger economy) which sent crude oil up nearly $2 a barrel. Gold also hit a new all time high as the dollar fell and a report was released that the Indian central bank may buy more bullion for its reserves.

Economic Data:

On the economic front, the government said that weekly jobless claims fell to their lowest level since September 2008 which led many to speculate that the worst is over for the labor market. The Labor Department said the number of Americans filing claims for unemployment benefits fell to 466,000 last week which was a welcomed sign. The Reuters/University of Michigan index of consumer confidence was 67.4, higher than the average estimate of 67. Meanwhile, the Commerce Department said consumer spending rose +0.7% last month which topped the Street’s estimate for a +0.5% reading and new home sales jumped by +6.2%. On Tuesday, the Federal Reserve raised its forecast for 2010 economic growth to a range of 2.5%-to-3.5%, up from +2.1%-to-+3.3%. The Fed also signaled that it will be more accepting of a weaker US dollar in the near term to help spur economic growth.

What Matters Most- Price & Volume:

Looking at the market, the current rally remains intact as the major averages refuse to go down and continue marching higher. This is a strong sign of institutional sponsorship but concerns remain as volume continues to dry up as the the market crawls higher and leadership remains inordinately thin. This action suggests anything is possible but until a broad based sell off occurs, the bulls remain in control.

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