Wednesday, January 20, 2010
Market Commentary:

The major averages got smacked on Wednesday as investors digested the latest round of tepid earnings and economic data. Volume was reported mixed; higher on the Nasdaq and lower on the NYSE. The higher volume decline on the Nasdaq marked a distribution day for that exchange and suggested that large institutions are aggressively selling stocks. However, the lower volume on the NYSE helped that exchange avoid the same fate. Decliners trumped advancers by nearly a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 15 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 26 issues that appeared on the prior session. New 52-week highs still solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Earnings Data: IBM, Bank of America, Morgan Stanley, and Coach

Several high profile companies released lackluster Q4 results on Wednesday: IBM (-2.90%), Bank of America (BAC +1.04%), Morgan Stanley (MS -1.70%), and Coach Inc. (COH -5.61%) were among some of the well-known companies who disappointed the Street. IBM gapped down to its 50 DMA line after reporting a decrease in fourth-quarter business-consulting revenue, earnings rose +10% from the same period in 2008 while sales rose only +1%. Morgan Stanley opened lower after earnings missed analysts’ expectations and the company said trading revenue fell. Coach gapped down below its 50 DMA line after the company said North American sales fell short of analysts’ forecasts. Meanwhile, Bank of America closed in the black as investors were optimistic about the company’s future.

Economic Data: China curbs lending, PPI, Housing Starts, and Redbook

On the economic front, China said that it will restrict overall credit growth to 7.5 trillion yuan ($1.1 trillion) in 2010. China’s banking regulator, Liu Mingkang, said some lenders were asked to curb their lending practices because they failed to meet regulatory requirements. Mingkang was interviewed at the Asian Financial Forum in Hong Kong and said that new loans in the first 10 days of this year were “relatively high.” The sharp anti-lending rhetoric was designed to slow China’s red-hot economy. Investors were concerned that if China’s economy starts to slow than that might adversely affect the overall global recovery.
Domestically, a slew of economic data was released: a weaker than expected Producer Price Index (PPI), a mixed reading from the ailing housing market, and weakness in retail sales. Producer prices fell sharply in December which helped relieve inflation woes and ease pressure on the Fed to begin raising rates in the near future. Housing starts fell but building permits rose which helped offset the negative reading. Meanwhile, the Redbook, which measures sales at chain stores, discounters, and department stores, fell last week which suggests that retailers are having a tough start to the new year.

Market Outlook: Uptrend Under Pressure

For the most part, the major averages and leading stocks are pausing to digest their recent gains as investors make their way through the latest round of economic and earnings data. Until a clear picture can be formed as to how companies fared last quarter, one could easily expect to see more of this sideways action to continue. The market just began its 46th week since the March lows and the rally remains intact as long as the major averages continue trading above their respective 50-day moving average (DMA) lines. Trade accordingly.