Strong Open After MLK Weekend

Tuesday, January 19, 2010
Market Commentary:

The major averages jumped on Tuesday as traders returned from a long holiday weekend. As expected, volume was reported lower than Friday’s heavy options expiration levels on the NYSE and on the Nasdaq exchange. Lower volume behind today’a gains suggests that large institutions were not aggressively buying stocks. Advancers trumped decliners by over a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 26 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the total of 15 issues that appeared on the prior session. New 52-week highs still solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Politics & Healthcare

In recent months we have seen stocks jump on the first trading day of the week before the bulls get tired and stocks fade ahead of the weekend. Will this time be different? Only time will tell. In other news, healthcare companies were among the biggest gainers as US Democrats face the possibility of losing a Senate seat held by the late Edward Kennedy as voters go to the polls in Massachusetts. If the Dems loss the election, it could cost them a 60-vote supermajority needed to help pass Obama’s massive health-care package.

Earnings Corner:

Companies continue reporting earnings in droves this week as there will be approximately 65 companies in the S&P 500 that are slated to release earnings by Friday. So far, earnings have been strong but the major averages have barely budged. Analysts believe that earnings surged +67% last quarter. If that occurs, it would snap a nine quarter losing streak, which is the longest in US history. Remember that since the March low, the benchmark S&P 500 is up +70% which is the single largest stock market rally since the Great Depression! The robust rally sent the index’s price-earnings multiple (a.k.a P/E ratio) to 25 last week from 10.1 in March, which was the lowest reading in a quarter century.

Market Action: Uptrend Intact

For the most part, the major averages and leading stocks are acting well as investors continue to digest the slew of economic and earnings data being released each day. Until a clear picture can be formed as to how companies fared last quarter, one could easily expect to see more of this sideways action to continue. The market just began its 46th week since the March lows and the rally remains intact as long as the major averages continue trading above their respective 50-day moving average (DMA) lines.
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