Daily Market Commentary

Stocks Rally As Dollar Falls

Monday, October 18, 2010
Stock Market Commentary:

Stocks rallied as the US dollar fell and the latest round of economic and earnings data hit the wires.  Volume patterns remain healthy as the major averages continue their 8-week rally. Healthy volume patterns are important because they suggest large institutional investors are aggressively buying, not selling, stocks.   It is also encouraging to see, market internals remain healthy evidenced by an upward sloping Advance/Decline line and the fact that new 52-week highs continue to easily outnumber new 52-week lows on both exchanges.

Economic Data Is Mixed:

Before Monday’s opening bell,  US industrial production unexpectedly fell -0.2% last month which fell short of the small gain expected on Wall Street. At 10:00 AM EST, US homebuilder confidence rose in October to the highest level in four months which was a welcomed sign for the ailing housing market. The National Association of Home Builders/Wells Fargo confidence index rose to +16 which topped estimates and exceeded the prior month’s reading of 13.

Q3 Earnings Top Estimates:

Citigroup (C) jumped over +3% after the company said earnings rose +$0.07 compared to a loss of –$0.07 in the same period last year.  After Monday’s close, International Business Machines (IBM) and Apple Inc. (AAPL) are slated to release their Q3 results. Both stocks have enjoyed double digit percent gains since the September 1, 2010 follow-through day (FTD). Looking forward, twelve members of the 30-stock Dow Jones Industrial Average are scheduled to post Q3 earnings this week. Accordingly to Bloomberg.com (so far) over +75% of companies in the S&P 500 index that have reported their Q3 results, beat estimates

Market Action- Confirmed Rally Week 8:

The action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been very strong and stocks are simply pausing to consolidate their recent gains. It was encouraging to see the bulls show up and defend support (formerly resistance) in recent weeks. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. Trade accordingly.

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