Wednesday 12.30.09

Market Commentary:

The major averages opened lower but closed higher on concern that the Fed will withdraw its stimulus measures sooner than expected as the economic recovery continues. Volume, an important indicator of institutional sponsorship, was reported lighter than Tuesday’s totals which indicated large institutions were not aggressively buying or selling stocks. Decliners led advancers by a 21-to-17 ratio on the NYSE and were about even on the Nasdaq exchange. There were 18 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the total of 27 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Stronger Economic Data:

At 9:45 am, the Institute of Supply Management (ISM) released its Chicago purchasers index (PMI). The index surveys purchasers from both the manufacturing and non manufacturing (i.e. service) sectors of the economy. In the simplest form, the report compiles surveys to analyze business conditions in the Chicago area. The index came in at 60 which easily topped the Street’s forecast for 54.9. The Chicago PMI has posted three consecutive monthly gains all at accelerating rates (60.0 Dec, 56.1 Nov, 54.2 Oct).  December’s reading was also the highest reading since January 2006! The stronger than expected report suggests the economy is improving and bodes well for the recovery. Paradoxically, evidence of a stronger economy led many to worry that the Fed will begin withdrawing its stimulus measures and possibly begin erring on the side of raising rates in early 2010.

Market Action: Price & Volume Remain Healthy

Looking at the market, the action remains constructive. The Dow Jones Industrial Average, small cap Russell 2000 Index, S&P 500 Index, Nasdaq Composite and NYSE Composite indices are all trading near fresh 2009 highs which bodes well for this rally. The inverse relationship with the US dollar has eased in recent weeks as both stocks and the greenback have rallied in tandem. Ideally, one would like to see leadership and volume expand over the next few weeks as the major averages continue advancing.