Stocks Negatively Reverse After Beige Book Shows "Modest" Economic Growth

Wednesday, June 9, 2010
Market Commentary:

The major averages negatively reversed (opened higher and closed lower) after the Fed’s Beige Book showed the economy is growing “modestly.” Volume, an important indicator of institutional sponsorship, was lighter than Tuesday’s levels. Advancers led decliners by about a 10-to-9 ratio on the NYSE but trailed by about a 6-to-7 ratio on the Nasdaq exchange. There were only 5 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 than the 3 issues that appeared on the prior session.  New 52-week highs outnumbered new 52-week lows on the NYSE but trailed by a large margin on the Nasdaq exchange.

Fed Beige Book Shows “Modest” Economic Growth:

Investors dumped stocks after the Federal Reserve released its Beige Book. The Fed survey said economic growth was “modest” which worried investors. The Beige Book which is published two weeks before a Fed meeting said, “Economic activity continued to improve since the last report across all 12 Federal Reserve Districts, although many Districts described the pace of growth as ‘modest.’” Elsewhere, a slew of energy and financial stocks tanked which dragged the major averages lower in the final few hours before the close.

Price & Volume Action Of Leading Stocks & The Major Averages:

In addition to studying the price and volume action of the major averages it is very important to analyze how leading stocks are performing. Since the beginning of May, leadership has virtually dried up which bodes poorly for the health of this market. In addition, the number of high ranked stocks that are considered “healthy” in this market has decreased markedly. That, coupled with the ominous action in the major averages plays a pivotal role in our defense stance. Furthermore, the fact that the major averages can not rally for at latest twenty four hours, even after finding support near last month’s lows on Tuesday, is another ominous sign.

Market Action- In  A Correction:

It is well known that a market should not be considered “healthy” unless it trades above its rising 200-day moving average (DMA) line. The fact that all the major averages are below both their 50 & 200 DMA lines bodes poorly for the near term. That said, the bears will likely remain in control until the popular averages close above their important moving averages and the euro catches a bid.
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