Wednesday, July 21, 2010
Stock Market Commentary:

The major averages ended lower after Obama signed the Financial Regulation bill and Federal Reserve Chairman Ben Bernanke spent his afternoon testifying on Capital Hill. Volume, an important indicator of institutional sponsorship, was higher than Tuesday’s level on both exchanges. There were 23 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher from the 18 issues that appeared on the prior session. Decliners trumped advancers by nearly a 2-to-1 ratio on the NYSE and by nearly a 3-to-1 ratio on the Nasdaq exchange. New 52-week highs solidly outnumbered new 52-week lows on the NYSE but trailed on the Nasdaq exchange.  For the rally to have ongoing success it will be critical for a healthy crop of leaders to continue showing up hitting new 52-week highs.

FinReg Bill, Bernanke and Q2 Earnings Fail To Impress The Street:

A slew of high profile companies released their Q2 results since Tuesday’s close and nearly all of them are trading lower which suggests investors are not happy with their results. In other news, President Obama signed the FinReg bill into law today and Ben Bernanke made it clear that the Fed will continue to help the US economy recover from the worst financial crisis since the Great Depression. Bernanke also said that the economic outlook remains “unusually uncertain” without offering additional measures to stimulate growth.

Focus On Price & Volume, Not The “Noise”:

To help keep the current action in proper perspective it is of the utmost importance to filter out the “noise” and focus on how the major averages are performing right now. At this point, all the major averages closed below resistance (their two-month downward trendlines and important moving averages). By definition, the major averages are in a “downtrend” until they close above resistance. Until then, odds favor lower/choppy prices will continue. In addition it is important to note that one of the best ways to determine how the market feels about a specific event (earnings, political, economic, etc.) is to simply analyze how the market reacts to the data. That said, the fact that the major averages can not rally during an otherwise positive earnings season bodes poorly for this nascent rally.

Market Action- Rally Under Pressure:

Since the current rally began on July 1, the major averages have rallied on suspiciously light volume, leadership has been very light and resistance has held firm- all unhealthy signs. This ominous action suggests another pullback may be in the cards. That said, patience and caution are of the utmost importance until the major averages close above resistance. Trade accordingly.
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