Wednesday, December 16, 2009

Market Commentary:

The major averages ended mixed as investors digested a slew of important data: the Fed concluded its last meeting of the year, housing starts topped estimates and consumer prices matched forecasts. Volume, an important indicator of institutional sponsorship, was reported lighter than Tuesday’s totals on the NYSE and on the Nasdaq exchange which signaled large institutions were not aggressively buying or selling stocks. Advancers led decliners by about a 2-to-1 ratio on the NYSE and by nearly a 4-to-3 ratio on the Nasdaq exchange. There were 53 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 42 issues that appeared on the prior session. New 52-week highs substantially outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Economic Data: CPI & Housing Starts Ease Fears

At 8:30 AM EST, two important economic reports were released: the consumer price index (CPI) and housing starts. The Labor Department said consumer prices rose by +0.4% in November after gaining +0.3% in October. The headline number matched estimates which helped allay inflation woes. The core rate, which excludes food and energy, was unchanged last month and was below the Street’s estimate for an increase of +0.1%. Elsewhere, the Commerce Department said housing starts, which are registered when construction begins on a new residential building, were in line with estimates and rose +8.9% to an annual rate of 574,000 units. Meanwhile, building permits, a sign of future construction, jumped to the highest level in a year which was an encouraging sign. The pre-market news left investors optimistic about the future because the data signaled that the economy was recovering while inflation remained somewhat contained.

Fed Meeting: Hold Rates Steady 0-0.25%

At 2:15 PM EST, the FOMC concluded its two-day meeting and decided to leave interest rates steady near historical lows of 0-.25%. Time Magazine named Fed Chairman, Ben Bernanke as person of the year thanks to his ability to save the country’s financial system from the worst recession since the WWII. Many economists believe that the US economy will grow over +4% in the fourth quarter of 2009 which will be the fastest pace in almost four years. However, stocks sold off after the Fed’s announcement because many investors believe that keeping rates this low will cause rampant inflation down the road.

Price & Volume Action: Still Healthy

On Wednesday, the major averages closed near important resistance levels as leading stocks were mixed. The Dow Jones Industrial Average and benchmark S&P 500 index closed below 10,500 and 1,115, their respective resistance levels. The Nasdaq composite closed just above 2200 which has served as an important level of resistance for the tech heavy index in recent months.
At this point, the action remains healthy as long as the major averages remain above their respective 50-day moving average lines. So far the market has held up rather nicely to the slew of economic data that was released this week. As long as this action continues, the major averages deserve the bullish benefit of the doubt.