Friday, January 29, 2010
Stocks ended the day, week, month and year lower as investors digested the latest round of tepid economic and earnings data. Volume totals have turned bearish in recent weeks as large institutions continue dumping stocks. Decliners continue to lead advancers as the correction intensifies.
Timing The Correction:
On Friday, January 22, US stocks ended their 46 week rally and entered a correction when all the major averages plunged below their respective 50-day moving average (DMA) lines. Since the March 2009 low, none of the major averages fell more than-10% from their post recovery highs which reiterates how strong this market actually is. However, now that the market is in a correction and the Nasdaq is down just under -8% from its recent high; it will be very interesting to see if the bulls show up and quell the bearish pressure or the selling intensifies. It is important to note that even other developed markets overseas have performed rather well over the past 10 months. However, the Hang Seng Index, Hong Kong’s stock market, fell -10% from its recent high which could drag the rest of the world lower.
The latest round of corporate earnings continue to top analysts’ estimates but fail to impress Wall Street. In the last full week of January, more than 130 companies in the benchmark S&P 500 reported their Q4 results but stocks sold off. Barring some unforeseen event, earnings will have expanded nearly +70% and snapped a record nine-quarter earnings slump. Longstanding readers of this column know that in addition to analyzing the numbers we pay equal, if not more, attention to how the market reacts to the numbers. So far, the reaction has been lackluster at best.