Monday, January 04, 2010

Market Commentary:

The major averages rallied on the first trading day of 2010 as the US dollar fell and healthy economic data was released from the US and China. As expected, volume, an important indicator of institutional sponsorship, was reported higher than Thursday’s pre-holiday totals which indicated large institutions were buying stocks. Advancers trumped decliners by nearly a 4-to-1 ratio on the NYSE and by over a 3-to-1 ratio on the Nasdaq exchange. There were 63 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 total of 24 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Healthy Economic Data Lifts Stocks:

Overnight, stronger than expected manufacturing data was released from China which sparked a broad based rally in overseas markets. Manufacturing in China grew by the strongest rate since April 2004 which helped allay concerns that the global economic recovery was waning. It is important to note that China was one of the first countries to recover from the first global recession since World War II. The buying continued in the US when The Institute for Supply Management’s (ISM) factory index rose to 55.9. The report topped estimates and was the highest level in more than three years which suggests the US manufacturing sector is definitely in recovery mode.

Weaker Dollar Helps Stocks & Commodities:

The US dollar fell on the first trading day of 2010 which sent a slew of dollar denominated assets higher. Crude oil rose for an eighth consecutive session, Gold jumped above its 50 DMA line, Orange-juice futures hit limit-up (i.e. largest gain allowed in one session) amid below average temperatures in the US and copper vaulted to a 16-month high after a strike at a mine in Chile threatened to curb supply. Temperatures across much of the US (and the world) have fallen sharply this winter which helped send natural gas and heating oil prices higher in recent weeks.

Market Action- Price & Volume Remains Healthy:

Looking at the stock market, the action remains very healthy. The major averages continue advancing as this rally begins its 44th week (since the March 2009 lows). In addition, most bull markets last for approximately 36 months so the fact that we are beginning our 10th month suggests we have more room to go. The Dow Jones Industrial Average, small cap Russell 2000 Index, S&P 500 Index and Nasdaq Composite and NYSE Composite indices are all trading near their respective 2009 highs which also bodes well for this rally. Leadership is beginning to expand which is a welcomed sign and ideally it will continue to expand over the next few weeks as the major averages continue advancing.