Friday, November 12, 2010
Stock Market Commentary:
Stocks and commodities snapped a 5-week winning streak as the US dollar rallied one week after the Fed’s historic QE II announcement. Volume patterns remain healthy as the major averages have now completed the 11th week of their ongoing rally. On average, 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.
The “big” story this week was a falling euro. The euro fell to a six week low versus the US dollar as concern spread that some European governments will struggle to repay their debt. This sent a slew of dollar denominated assets lower (mainly stocks and commodities). We would be remiss not to note that these markets are currently very extended and a pullback of some sort will do wonders to restore the health of this ongoing 11-week bull run. On Tuesday, gold and silver marked their highs for the week when they negatively reversed from new high ground. On Wednesday, the Labor Department said weekly jobless claims fell which suggested that the jobs market is improving. Elsewhere, the trade balance topped estimates which was a welcomed sign for both the market and the economy. Equally important, leading stocks remain healthy which is a very strong sign.
Thursday & Friday- Cisco Gaps Down and Inflation Picks Up In China:
After Wednesday’s close, shares of Cisco Systems (CSCO) gapped down over -10% after reporting their latest quarterly result. This put downward pressure on futures and led to a soft open on Thursday. Overnight, China said its consumer price index, a popular gauge of inflation, rose +4.4% in October. The prospect of higher inflation coupled with robust economic growth in China will likely lead the Chinese central bank to raise rates to curb inflation and curtail their robust growth. This sent the US dollar higher which in turn added more downward pressure on equity futures. However, it is encouraging to see the action in leading stocks remain robust as the market stubbornly holds on to its recent gains.
Market Action- Confirmed Rally, Week 11:
Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market action has been wide-and-loose which is not a healthy sign. The next level of support for the major averages is their October highs (SPX 1190-1195), then their respective 50-day moving average (DMA) lines. Trade accordingly.
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