Thursday 12.03.09

Market Commentary:

The major averages negatively reversed (opened higher and closed lower) after a the European Central Bank (ECB) held rates steady and disappointing economic data was released. Volume, an important indicator of institutional sponsorship, was mixed compared to Wednesday’s levels; higher on the NYSE and lower on the Nasdaq exchange. As a result, the NYSE indexes marked a distribution day as they fell on higher volume but the Nasdaq avoided one since volume receded. Advancers led decliners by almost a 2-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 44 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 46 issues that appeared on the prior session. Leadership among high-ranked growth stocks had dried up in recent weeks, so the expansion in new highs this week has been a welcome improvement. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Jobs & The Economy

Before Thursday’s open, the Labor Department said that 457,000 jobless claims were reported last week which was just under the Street’s estimates. Before Friday’s opening bell, the Labor Department is slated to release November’s jobs report. The latest estimate on Wall Street is that employers slashed -100,000 jobs last month and the unemployment rate held steady at +10.2% which is the highest level in 26 years. If the report shows that the economy lost 100,000 jobs in November it will be the smallest monthly decline in payrolls since March 2008.
Elsewhere, the Institute for Supply Management (ISM) said its service index fell below the boom/bust line of 50, to 48.7 last month. The reading was below economists’ estimates of 52 and signaled contraction for the first time in several months. Bloomberg.com defines the ISM non-manufacturing index as: “The ISM surveys nearly 400 firms from 60 sectors across the United States, including agriculture, mining, construction, transportation, communications, wholesale trade and retail trade.” Since the service sector compiles a large portion of economic activity, this index is a great proxy for the underlying health of the economy.

Bernanke On Capital Hill

Dr. Ben Bernanke spent the day defending his job, and the Federal Reserve, on Capital Hill as congressmen spent hours asking him questions about the financial crisis.  One of the most controversial topics, was when Bernanke denounced a congressional audit of the Fed. Most analysts believe that he will easily get approved for a second term but the jury is still out whether or not the Fed will maintain its immunity from congressional audits. Congress wants the ability to audit the Fed and review the Fed’s monetary policy to ensure the central bank does not succumb to political pressure. Last month, the House Financial Services Committee voted to approve a proposal to audit the Fed backed by Ron Paul.

What’s Actually Going On- Price & Volume

Looking at the market, the action remains mixed to slightly positive as the major averages continue consolidating their recent move just below resistance. Each of the major averages are having a difficult time trading above important resistance levels in recent weeks as the market continues building its latest base. Leadership, a critical component of a healthy rally, has narrowed sharply in recent weeks as the market continues consolidating.  Currently, the three areas of strength are: large cap technology, gold, and small and mid cap China-based stocks. Ideally, one would like to see the market break above resistance as a new batch of high quality leadership expands. Until that occurs, expect sideways to lower action to continue.