Friday, December 17, 2010
Stock Market Commentary:

The major US averages continued trading in a relatively tight range as a flurry of headlines crossed the wires. Market internals remain healthy, evidenced by an advancing advance/decline line and an expanding number of stocks reaching new 52-week highs.

Monday & Tuesday’s Action- Stocks Remain Perched Near Highs

On Monday, stocks rallied as the USD fell and China said it will hold rates steady even though inflation is accelerating. On Tuesday, stocks edged higher after investors digested a slew of economic data. US retail sales topped estimates in November as holiday shopping began. The stronger than expected report was a welcomed sign and bodes well for the ongoing economic recovery. Elsewhere, the Labor Department said the US producer price index (PPI) rose last month by the largest amount in eight months due to higher food and energy prices. The PPI rose +0.8% from the prior month after a +0.4% rise. Core prices, which exclude food and energy, rose +1.2% from the same period last year which was the smallest increase in five months and matched estimates. At 2:15pm EST, the Federal Reserve decided to hold rates steady and largely reaffirmed their recent stance on the economy and QE II.

Wednesday-Friday’s Action- Spain Might Be Downgraded & US Economic Data:

Stocks fell on Wednesday after Moody’s, the popular rating agency, said it might cut Spain’s credit rating from Aa1 which sent the euro and a slew of European markets lower. Spain has to raise 170 billion euros ($226 billion) next year, while refinancing its onerous debt levels, accordingly to data compilied at Moody’s. In the US, NY mfg rebounded and topped forecasts in December which was the latest in a series of stronger than expected economic data. The Federal Reserve Bank of New York’s general economic index rose to +10.6. Elsewhere, a separate Fed report showed U.S. industrial production grew +0.4% which was higher than the +0.3% average estimate.
On Thursday, the major US averages edged higher as a flurry of headlines crossed the wires. Spain’s bonds slid, sending the 10-year yield up four basis points to 5.56%, after the country sold 2.4 billion euros of 10-year and 15-year bonds at an auction on Thursday. The Bank of Spain said that the results were just below a maximum target of 3 billion euros. In the US, the Labor Department said jobless claims unexpectedly fell by -3,000 to 420,000 last week. Elsewhere, the Commerce Department said, housing starts swelled to a 555,000 annual rate last month which was 3.9% higher than October’s level. Finally, the Federal Reserve Bank of Philadelphia’s general economic index rose to 24.3 which topped the median forecast of 15, as orders and the factory workweek rose. On Friday, stocks remained in a relatively tight range even after Moody’s downgraded Ireland’s debt rating by 5 notches. Friday was also quadruple witching day which occurs when a series of options expire.

Market Action- Market In Confirmed Rally Week 16 Ends

It is encouraging to see the bulls show up and defend the 50 DMA lines for the major averages. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.