Tuesday, February 8, 2011
Stock Market Commentary:
China’s central bank raised rates on Tuesday to combat inflation and curb their red-hot economy. This sent a slew of commodities (i.e. crude, copper, etc) lower on concern that demand will wane. The fact that the major averages bounced back sharply after a very brief pullback illustrates how strong this 24-week rally actually is.
China Raises Rates:
On Tuesday, stocks were relatively quiet after China’s central bank raised rates for a third time since October 2010 to curb inflation. The People’s Bank of China said on its website that the benchmark one-year lending rate will rise to 6.06% from 5.81%, effective Wednesday. The bank also said that the one-year deposit rate will increase to 3% from 2.75%. In the U.S., McDonald’s (MCD) said same store sales beat estimates, largely due to stronger demand from overseas markets. Elsewhere, a report showed that housing prices continued to fall last month which puts pressure on the ailing housing market. Finally, several Fed officials spoke on Tuesday, some supporting QE II and some making the case to revisit the decision.
Market Action- Confirmed Rally; Week 24
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, the market remains in a confirmed rally 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 are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.