Daily Market Commentary

Stocks Rally On Favorable Economic Data

Wednesday, August 4, 2010
Stock Market Commentary:

The major averages rallied after two favorable economic reports were released. Volume totals were reportedly higher on both major exchanges which was a welcomed sign. Advancers led decliners by a 3-to-1 ratio and the NYSE and by a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs easily outnumbered new 52-week lows on the NYSE and the Nasdaq exchange.  There were 35 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 from the 27 issues that appeared on the prior session.

Healthy Economic Data Lifts Stocks- Jobs & Service Index:

Stocks closed higher after the ADP said private employers added more jobs than expected last month and the ISM’s service index topped estimates. ADP Employer Services, the country’s largest private payrolls report, showed companies in the US added 42,000 employees to payrolls in July, topping the Street’s forecast of 30,000 increase. This report bodes well for Friday’s non farm payrolls report.
Elsewhere, the Institute for Supply Management’s index of non-manufacturing businesses, which covers over +85% of the economy, rose to 54.3 from 53.8 in June. Analysts were looking for a decline to 53. It is also important to note that any reading above 50 signals expansion.

Market Action- Confirmed Rally:

At this point, the Dow Jones Industrial Average and the NYSE Composite Index have traded above resistance at their long term 200-day moving average (DMA) lines and recent chart highs. The tech-heavy Nasdaq Composite, benchmark S&P 500, and small-cap Russell 2000 index remain slightly below their recent chart highs. However, the fact that all of the major averages are trading above their respective 2-month downward trendlines bodes well for this five week rally. In order for a new leg higher to begin, all the major averages must close and remain above their respective resistance levels. Remember that the window remains open for for high-ranked stocks to be accumulated when they trigger fresh technical buy signals. Trade accordingly.