Daily Market Commentary

Day 16: Still Waiting For A Follow-Through Day

Monday, March 1, 2010
Market Commentary:

Stocks and the dollar rose after the latest round of M&A news was announced. Monday marked Day 16 of the current rally attempt but the market failed to produce a proper follow-through day because the gains fell short of the +1.7% guideline. Volume, a critical gauge of institutional demand, was reported mixed compared to Friday’s levels; higher on the Nasdaq and lower on the NYSE. Advancers led decliners by a nearly a 4-to-1 ratio on the NYSE and by nearly a 3-to-1 ratio on the Nasdaq exchange. New 52-week highs trumped new lows on both exchanges which was another welcomed sign.

Stocks Rally On Latest Economic Data:Stocks rallied after the the latest round of economic data was released. US personal spending grew +0.5% in January for a fourth consecutive increase, while personal income grew by +0.4%. A separate report, released by the ISM, showed that US manufacturing was above the boom/bust level of 50. The ISM manufacturing index eased to 56.5 in February which was higher than January’s reading but slightly below consensus. In other news, Chilean stocks plummeted after the earthquake killed close to 1,000 people, severed the country’s main highway, and damaged 1.5 million homes.

Market Action- In A Correction:

Looking at the market, Monday marked Day 16 of a new rally attempt which means that as long as the February 5th lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders break out of fresh bases. However, if the February 5, 2010 lows are breached then the day count will be reset and a steeper correction may unfold. So far, the market is getting stronger as investors continue to digest the latest round of stronger than expected economic and earnings data. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is paramount.
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