Friday, December 18, 2009

Market Commentary:

The major averages ended the week mixed as the US dollar continued to rally and investors digested a slew of economic data. Stocks closed higher on Friday as volume, an important indicator of institutional sponsorship, jumped above Thursday’s levels due to quadruple witching. Advancers led decliners by an 11-to-8 ratio on the NYSE and by nearly a 4-to-3 ratio on the Nasdaq exchange. There were 26 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 from the total of 20 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Monday & Tuesday:

On Monday, stocks edged higher after Abu Dhabi announced it would bail out Dubai World and Exxon Mobil Corp (XOM) announced plans to buy XTO Energy Inc. (XTO) for $31 billion. The major averages closed just below their near term resistance levels and spent the rest of the week pulling back towards their respective support levels (50 day moving average lines). On Tuesday, the major averages closed lower as investors digested the latest round of disconcerting economic data. Before Tuesday’s opening bell, two tepid economic reports were released which suggested stagflation may be on the horizon (higher inflation coupled with low economic activity). The producer price index (PPI) surged while the Empire State manufacturing index plunged. That afternoon, the National Association of Home Builders released their housing market index. The index, which rates the overall economy and housing market conditions, fell 1 point in December to 16 which is a very low reading.

Wednesday:

On Wednesday, the market ended mixed as investors digested a slew of important data: the Fed concluded its last meeting of the year, housing starts topped estimates and consumer prices matched estimates. Before the open, two important economic reports were released: the consumer price index (CPI) and housing starts. The Labor Department said consumer prices rose by +0.4% in November after gaining +0.3% in October. The headline number matched estimates which helped allay inflation woes. The core rate, which excludes food and energy, was unchanged last month and was below the Street’s estimate for an increase of +0.1%. Elsewhere, the Commerce Department said housing starts, which are registered when construction begins on a new residential building, were in line with estimates and rose +8.9% to an annual rate of 574,000 units. Meanwhile, building permits, a sign of future construction, jumped to the highest level in a year which was an encouraging sign. At 2:15PM EST, the FOMC concluded its two-day meeting and decided to leave interest rates steady near historical lows of 0-.25%. However, the Fed signaled that they will stop participating in capital markets by February 2010 and this put pressure on stocks.

Thursday:

Stocks got smacked on Thursday as the dollar rallied to a fresh three month high against the euro as concern spread that the Fed-induced rally will end in early 2010. Before Thursday’s opening bell, the Labor Department said initial jobless claims rose slightly last week to 480,000 versus expectations for 465,000. At 10:00AM EST, the Conference Board released its index of leading economic indicators and the Philadelphia Fed released its index which measures general economic conditions in the region. The Conference Board’s index, which is used to forecast the following 3-6 months, rose by +0.9% in November which bodes well for the first half of 2010. The index measures ten economic indicators that usually “lead” the overall economy. Meanwhile, the Philadelphia Fed’s headline index rose more than 3.5 points to 20.4 which indicates healthy month-to-month acceleration in the region’s manufacturing sector.

Friday:

On Friday, stocks edged higher as the major averages continued basing. At this point, resistance for the Dow Jones Industrial Average, S&P 500, and the tech-heavy Nasdaq Composite stands at: 10,500, 1,115, and just above 2,200, respectively, Conversely, support sits just above their respective 50 day moving average lines. Looking forward, one could logically expect the sideways action to continue until either support or resistance is breached. Until then, patience is king.