Daily Market Commentary

Day 1 Of A New Rally Attempt

Monday, August 25 ,2010
Stock Market Commentary:

The major averages ended higher which marked Day 1 of a new rally attempt as the market snapped a four day losing streak. Volume reported on the NYSE and the Nasdaq exchange fell on Wednesday compared to Tuesday’s levels which suggested large institutions were not aggressively buying stocks. Advancers led decliners by over a 4-to-3 ratio on the NYSE and by over an 8-to-5 ratio on the Nasdaq exchange. New 52-week highs outnumbered new 52-week highs on the NYSE but trailed on the Nasdaq exchange. There were 6 high-ranked companies from the CANSLIM.net Leaders List made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, the same number that appeared on the prior session.

New Home Sales & Durable Goods Orders Are Weak:

Stocks opened lower after new home sales plunged to a record low and durable goods orders fell short of analyst estimates. The Commerce Department said new home sales unexpectedly slid last month to the lowest level on record which suggests the housing market remains very weak. Sales fell -12% from June to an annual pace of 276,000, the lowest level since data began in 1963! The report also showed that the median home price fell to $204,000 which was the lowest reading since late 2003. Meanwhile, durable goods orders, which are goods that are made to last at least three years, rose less than forecast in July. Durable goods orders rose +0.3%, which fell short of the +3% gain analysts had expected. Excluding transportation equipment, demand unexpectedly plunged -3.8% which is the largest monthly decline since January 2009 and lower than the Street’s forecast for a +0.5% increase.

Market Action- In  A Correction:

Wednesday marked Day 1 of a new rally attempt which means that the earliest a possible follow-through day (FTD) could emerge will be Monday. However, if at anytime, Wednesday’s lows are breached then the day count will be reset. The technical action in the major averages and the latest round of economic data bodes poorly for the market and the global recovery. Currently, resistance for the the major averages are their 50 DMA lines, then their longer term 200 DMA lines while support remains July’s lows. It is also disconcerting to see the action in several leading stocks remain questionable as evidenced by the dearth of high-ranked leaders breaking out of sound bases. Monday’s negatively reversal coupled with Tuesday’s ugly distribution day effectively ended the latest rally attempt. This emphasizes the importance of remaining cautious until the rally is back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support. The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
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