Stocks End Week Mixed; Techs Lead

Friday, October 29, 2010
Stock Market Commentary

Stocks and commodities ended mixed this week as the USD edged higher and investors digested the latest round of economic and earnings data. Volume patterns remain healthy as the major averages have now ended their 9th week of their ongoing rally. However, it is important to note that there have been an ominous number of distribution days that have emerged in the popular indexes in recent sessions which suggests caution. 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.

Monday & Tuesday’s Action: Stocks Edge Higher On Solid Housing Data

On Monday, stocks, oil, and gold opened higher as the dollar fell, after the G-20 concluded their meeting in South Korea over the weekend. Over the weekend, the G-20 met in South Korea and agreed to a major overhaul for the International Monetary Fund (IMF). The change represents a shift in the global economic power, away from the developed world and into the emerging markets. The overhaul will increase the IMF’s role in managing the global economy and will give emerging nations more control on how the organization is run.  The overhaul will also give over +6% of the IMF voting rights to countries such as China and India, while Europe will giveup two board seats. The G-20 also decided to give the IMF a role in monitoring global trade imbalances and exchange rates.
In the US, existing homes jumped +10% in September which was the highest jump on record and a welcomed sign for the ailing housing market. The National Association of Realtors said existing home sales rose to a 4.53 million annual rate, up from 4.12 million in August. This topped the Street’s estimate for an increase to a 4.3 million. However, the report did show that the median price slid -2.4% from a year earlier. On Tuesday, stocks opened lower then rallied back into positive territory as the US dollar rallied, the S&P Case-Shiller index disappointed investors, and consumer confidence topped estimates.

Wednesday- Friday’s Action: Stocks Flat On Strong Q3 Earnings & GDP  Matches Estimates:

Before Thursday’s open, futures jumped after jobless claims fell to a three month low. The Labor Department said initial jobless claims fell by -21,000 to 434,000 in the week ended Oct. 23. This was the lowest reading since July when fewer auto plants than normal closed for retooling. Stocks edged lower on Friday after the government said Q3 GDP rose +2%, matching estimates while inflation remained low. It is important to note that the mid-term elections are on Tuesday, the Fed will meet on Wednesday and announce the details of QE 2, and October’s non-farm payrolls are slated to be released next Friday. Needless, to see it will be a very busy week and we, as always, will be focusing on how the market reacts to the news, more than the news itself.
Market Action- Confirmed Rally, Week 9:

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 S&P 500 sliced below its two month upward trendline (shown above) which is not ideal. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. We have enjoyed large gains since the September 1st FTD and over the past two weeks, the tape remains somewhat sloppy.  Trade accordingly.

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