Market Commentary

The major averages ended higher thanks in part to a late day decline in the US dollar. Volume, an important indicator of institutional sponsorship, was lower than Tuesday’s levels on both major exchanges which signaled that large institutions were not aggressively buying stocks. It was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and on the Nasdaq exchange.

Tepid Economic Data Weighed On Stocks

Stocks were under pressure for most of the session after disconcerting economic data was released from Europe and Asia. In Asia, Japan’s government said that the world’s second largest economy grew at a +1.3% annualized rate last quarter. Not only was this way below estimates but it fell short of the +4.8% initial rate reported last month. The sharp downward revision caught nearly everyone off guard and sparked concern that a double dip recession may actually occur. In Europe, Standard & Poor’s lowered Spain’s credit outlook to “negative” and said they were concerned with the country’s slow economy and massive deficit spending. This occurred one day after a separate rating agency downgraded Greece’s credit rating. Stocks in Greece plunged this week as investors scramble to move into “safer” assets.

Perceived Safety

The U.S. dollar has rallied for most of the week which has put pressure on dollar denominated assets- mainly stocks and commodities. Crude oil plunged, as the dollar edged higher, and hit a fresh two-month low of $73.05 a barrel in New York. The government released a bearish report which showed that U.S. fuel inventories rose as refineries raised rates. The report also showed that gasoline stockpiles rose to 2.25 million barrels. Elsewhere, gold continued its week long decline but it was encouraging to see gold equities rally on Wednesday. Gold bulls were happy to see this subtle, yet important, divergence which suggests that gold may catch a bid after diving more than $100 points since hitting a fresh all-time high last Thursday.

Bailout Update

The bulls cheered after the Obama administration announced that it would extended the $700 billion financial bailout program until October 2010 to help stimulate the economy. This helped allay concerns that that government would prematurely withdraw its support and that would adversely affect the ongoing recovery. In addition, if that were to occur, it would greatly increase the odds of a double dip recession. At this point, government’s across the world are reaffirming their stance and continue to support their economic stimulus packages. After the close, Bank of America (BAC) reported that it repaid the US government the entire $45 billion it owed under the TARP program.

Market Action- Price & Volume:

Around 2pm EST the greenback started to fall and U.S. stocks started to rally. Apple Inc. (AAPL) vaulted +$7.66, or +4.18% and closed above its 50 DMA line on above average volume. Apple has been a strong leader since the March lows and the fact that it quickly repaired the technical damage is a bullish sign for this rally. A new crop of high ranked stocks are currently working on new bases (Read:10 Stocks on My Watchlist 12.09.09) as the major averages continue consolidating their recent gains above their respective 50 DMA lines. It was also encouraging to see the benchmark S&P 500 bounce off support (shown above) for the fourth time in the past few weeks. To be clear, the bulls deserve the bullish benefit of the doubt until the major averages close below their respective 50 DMA lines. At this point, the market and leading stocks are acting well and appear to want to move higher.