Daily Market Commentary

Flurry of M&A News Lifts Stocks

Tuesday, August 17, 2010
Stock Market Commentary:

The major averages rallied after after the latest round of earnings topped estimates and a flurry of mergers and acquisitions (M&A) were announced. Volume totals on were reported higher on both major exchanges versus the prior session, which was a sign that institutional investors were buying shares. Advancers trumped decliners by over a 3-to-1 ratio on the NYSE and Nasdaq exchange as the major averages closed in the middle of their daily range. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows on the Nasdaq exchange. There were 25 high-ranked companies from the CANSLIM.net Leaders List made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, up from the 11 issues that appeared on the prior session.

Flurry of M&A News Lifts Stocks:

The market opened higher after a flurry of mergers and acquisition news was announced. The “big” news came when an Australian firm made an unsolicited takeover bid of $39 billion for Potash Corp. of Saskatchewan Inc. (POT +27.66%). Potash Corp., the world’s largest fertilizer producer, rejected the unsolicited bid from BHP Billiton Ltd. as too low, but the news helped lift other fertilizers. So far, global M&A business has topped $1.22 trillion in 2010 which is +17% higher than the same period last year, according to Bloomberg. The increase in M&A business bodes well for the ongoing economic recovery.

Investor Confidence In Germany Still Low:

Most European indexes rose after German investor confidence fell more than forecast to a 16– month low. The ZEW Center for European Economic Research released a report which is designed to project six months ahead fell to 14 in August from 21.2 in the prior month. This was much lower than the Street’s forecast of 20. The market was able to shrug off the negative report when the US dollar fell (euro rallied) and the M&A news was released.

Market Action- Rally Under Pressure:

The technical action in the major averages is not ideal. Currently, resistance for the Dow Jones Industrial Average is its 200 DMA line, while the Nasdaq composite faces resistance at its 50 DMA line. Meanwhile, the benchmark S&P 500 index managed to close above its 50 DMA line but still faces resistance near its 200 DMA line (1,116) and then its prior chart highs near 1,131. The action in leading stocks remains questionable at best which is another disconcerting sign. Tuesday’s action does not change our cautious outlook. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.
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