Daily Market Commentary

Stocks Jump As China Eases Debt Woes

Thursday, May 27, 2010
Stock Market Commentary:

Stocks surged around the world after China said it remains a long-term investor in Europe which helped the euro snap a losing streak and China’s stock market to score a follow-through day (FTD). Volume totals were reported lower compared to Wednesday’s totals on both major exchanges while the indices ended unanimously higher.  Meanwhile advancers trumped decliners by over an 8-to-1 ratio on the NYSE and over an 6-to-1 ratio on the Nasdaq exchange. There were 9 high-ranked companies from the CANSLIM.netLeaders List that made a new 52-week high and appeared on the CANSLIM.netBreakOuts Page, higher than the 8 issues that appeared on Tuesday. New 52-week highs outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.  It is difficult for the market to mount a sustained rally without a healthy crop of strong leaders.

China Eases Debt Woes & Scores a FTD:

Overnight, China’s foreign exchange regulator quelled rumors that China was going to review its euro holdings. He said the rumors were “groundless” which sparked a world-wide rally and helped allay ongoing contagion woes. In Spain, Jose Luis Rodriguez Zapatero, won parliamentary approval for austerity measures which was another healthy step for the euro. One of the three stock exchanges in China, the Shenzhen stock exchange, scored a follow-through day on Thursday which bodes well for global capital markets. Over the past few years, China’s stock market has moved “ahead” of other stock markets.  For example, China’s Shanghai composite hit a low in October 2008, five months before the March 2009 bottom. More recently, the Shanghai composite placed a near term top on April 15, ten days before the S&P 500 printed its 2010 high of 1,219. Despite, China’s strong move it is still -20% below its 2010 high which technically defines a bear market. In addition, the Shanghai composite is still below both its 50 and 200 DMA lines which suggests a lot of technical damage most be repaired before this market can hit new highs.

US Economic Data: GDP & Jobless Claims:

In the US, two important economic reports were released: gross domestic product (GDP) and weekly jobless claims. The government said the US economy grew at a slower pace than previously expected in the first quarter and jobless claims fell less than economists expected. First quarter GDP rose +3% compared to last month’s reading of a +3.2% increase. Meanwhile, the Labor Department said, initial jobless claims fell by -14,000 to 460,000 in the week ended May 22 which was lower than the Street’s forecast of 455,000.

Market Action- In A Correction:

Thursday marked Day 3 of a new rally attempt for the benchmark S&P 500 Index and Day 1 for the other major averages. That said, as long Tuesday’s lows are not breached in the S&P 500, the earliest a proper follow-through day (FTD) could occur would be Friday. However, if at anytime Tuesday’s S&P 500 Index lows are breached, then the day count will be reset. What does all of this mean for investors? Simple, the market remains in a correction which reiterates the importance of adopting a strong defense stance until a new rally is confirmed. Trade accordingly.
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