Friday 12.11.09

Market Commentary:

For the week, the Dow Jones Industrial Average closed higher as the benchmark S&P 500 and the tech-heavy Nasdaq composite closed flat to slightly lower. Volume, an important indicator of institutional sponsorship, contracted compared to the prior week’s totals which was  a somewhat healthy sign as the major average continue building their current bases. New 52-week highs outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange which was another welcomed sign.

Monday: The Dollar & Commodities:

Stocks ended mixed on Monday as the dollar edged higher and commodities pulled back. This theme prevailed for most of the week and began on Friday December 4, 2009 when the Labor Department smashed estimates when they released November’s nonfarm payrolls report (employers only cut -11,000 jobs and the unemployment rate eased to 10%, down from a 26-year high of 10.2%). For the week, gold and crude oil got smacked, both pulling back sharply. After rallying for several weeks, on Thursday December 3, 2009 gold negatively reversed after hitting a new all time high of $1,226.40 and hasn’t looked back since. Crude oil slid as below $70 a barrel in New York as demand waned and supply rose.

The Fed:

Federal Reserve Chairman Ben Bernanke gave a speech at the Economic Club of Washington D.C. and said it was too early to determine the sustainability of the recovery. Bernanke also said that he sees modest economic growth in 2010 and does not believe inflation is a threat at this point. He also said that tight credit markets and a 10% unemployment rate could hinder future economic growth.

Tuesday & Wednesday:

Stocks slid on Tuesday after a series of negative headlines hit the wires: tepid economic data was released from Germany, several credit-rating companies highlighted the risk of huge government deficits in the developed world, Greece’s credit rating was downgraded, and Dubai World’s Nakheel PJSC said it lost $3.65 billion. Stocks advanced on Wednesday thanks in part to a late day decline in the US dollar. Japan’s government said that the world’s second largest economy grew at a +1.3% annualized rate last quarter which was way below the +4.8% level reported last month. The sharp downward revision caught nearly everyone off guard and sparked concern that a double dip recession is likely. In Europe, Standard & Poor’s lowered Spain’s credit outlook to “negative” and said they were concerned with the country’s slow economy and massive deficit spending.

Thursday & Friday:

Stocks edged higher on Thursday after positive trade data offset concerns about an increase in weekly unemployment claims. Before Thursday’s opening bell, the Labor Department said jobless claims topped expectations and rose last week to 474,000 after falling for five straight weeks. However, the bulls found comfort in the fact that the four-week average, which smooths out the data and is less volatile, slid to its lowest level since September 2008. Elsewhere, the Commerce Department said the trade deficit narrowed to $32.9 billion in October. The report showed that exports surged in October thanks in part to a weaker dollar. Furthermore, this was the sixth consecutive month that exports rose which bodes well for the US economy.
On Friday, investors cheered after two better-than-expected reports were released: retail sales and consumer confidence. However, stocks came under a little pressure in the afternoon when the House of Representatives passed legislation to create a Consumer Financial Protection agency which will monitor risk at large financial firms.

Important Support & Resistance Levels:

Looking at the recent action in the market, the major averages continue acting well as long as they remain perched just below resistance (their respective 2009 highs) and above their respective 50-day moving average (DMA) lines. Both these factors are considered healthy and bode well for this 8-month rally. The Nasdaq continues to experience formidable resistance just above 2,200 while the benchmark S&P 500 Index faces resistance just above 1,115. The blue chip Dow Jones Industrial Average remains the strongest of it peers and currently faces resistance just above 10,500. Until the major averages close above or below support or resistance, expect the bracketed (sideways) action to continue.