Thursday 12, 24, 2009
Stock Market Commentary:
The market closed higher for the week and on Thursday’s shortened pre-holiday session. Volume, an important indicator of institutional sponsorship, was lighter than Wednesday’s levels, again revealing the lack of appetite for accumulating shares from very large and influential institutional investors. Advancers led decliners by nearly a 3-to-1 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. There were 62 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, one less than the total of 63 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, while new lows were in the single digits on both exchanges.
Stocks ended this shortened holiday week higher as investors digested the latest round of mixed economic data. On Monday, the major averages rallied as the latest round of mergers and acquisitions were announced. It was also encouraging to see the major averages rally even as the US dollar advanced. Since early December, the US dollar has steadily advanced but the major averages have managed to hold their own and move sideways to slighter higher during that period which is a significant change from the recent inverse relationship that prevailed for most of this year.
Before Tuesday’s opening bell, the Commerce Department said third quarter GDP rose by +2.2% which was lower than prior estimates and led many to question the health of the ongoing recovery. The report showed that companies curbed spending and cut inventories due to lackluster demand. At 10:00AM EST, the National Association of Realtors said existing home sales jumped +7.4% to a 6.54 million annual rate. The report was the highest in more than two years and led many to question whether or not the ailing housing market has finally bottomed. It was encouraging to see stocks rally even in the face of weaker-than-expected economic data and a stronger dollar. Remember, a hallmark of a strong market is to see stocks rally even in the face of otherwise bearish news (i.e. weaker GDP #’s and a stronger dollar).
Wednesday & Thursday:
Investors digested a slew of economic data and sent stocks higher on Wednesday. At 7:00AM EST, the Mortgage Bankers’ Association (MBA) said its purchase application index fell -11.6% while its refinance index fell -10.1%, both below consensus. On a more positive note, the report showed that long term mortgage rates remain extremely low with 30-year loans averaging +4.92%. At 10:00AM EST, the Commerce Department said new home sales plunged -11% in November to a 355,000 annual rate which fell short of estimates. Furthermore, the report included downward revisions of 42,000 in the prior two months. New home sales measure the number of newly constructed homes with a committed sale during the prior month.
Elsewhere, personal income in November rose by +0.4%, following a rise of +0.3% in October. This was just below the Street’s estimate of a +0.5% gain. The wages and salaries component of the report rose +0.3% after a +0.1% increase in October. The report showed that inflation eased last month. The headline PCE price inflation component fell to +0.2% from +0.3% in October. Core PCE inflation was unchanged in November, down from a +0.2% increase in October. On Thursday, stocks edged higher after the US Commerce Department said orders for durable goods, goods meant to last several years, rose in November.
Price & Volume Action:
Looking at the market, the action remains healthy. The Dow Jones Industrial Average, small cap Russell 2000 index, S&P 500 and Nasdaq composite have all hit fresh 2009 highs this week. Leaving the NYSE composite just below its 2009 high. Again, the fact that the market managed to rally and hit new highs in the face of disconcerting economic data and a stronger dollar is a very strong sign. Ideally, one would like to see leadership and volume expand over the next few weeks as the major averages continue advancing.