19 Nov
Daily Market Commentary

Sour Economic Data Hurts Stocks

Stocks Got Smacked As The Dollar Rallies:

Stocks fell across the globe as the US dollar rallied and concern spread regarding the underlying health of the economic recovery. Volume, a critical component of institutional demand, was higher than Wednesday’s levels across the board which marked a distribution day for the major averages. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and Nasdaq exchange. There were only 10 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, lower than the 40 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Tepid Economic Data Hurts Stocks

Stocks experienced their largest intra day decline this month after the latest round of ominous economic data was released. The tepid economic data led many to question how long the global economic recovery will last and sent investors flocking to the US dollar for perceived safety. Before Thursday’s opening bell, the Labor Department said jobless claims (a.k.a the number of Americans filing claims for unemployment benefits) was unchanged at a 10-month low. Stocks also got hit after a report was released that showed mortgage delinquencies surged. So far, since the financial crisis began in 2007, writedowns (a.k.a losses) of mortgage-backed debt has surpassed $1.7 trillion at some of the world’s largest financial firms. The spike in mortgage delinquencies was due to a 26-year high in unemployment and a down tick in wages. The Mortgage Bankers Association said that that out of every six home loans insured by the Federal Housing Administration there is at least one late payment and +3.32% of those loans were in foreclosure last quarter. This was the highest reading for both measures in at least 30 years and bodes poorly for the troubled housing market.
Elsewhere, the Organization for Economic Cooperation and Development (OECD) doubled its growth forecast for industrialized nations in 2010 to +1.9%. However, the group said that record debt levels may hinder future growth. Separately, the Federal Reserve Bank of Philadelphia released its general economic index which topped estimates and suggests a slight improvement in that region. Billionaire investor, Bill Gross, who runs the world’s largest bond fund- Pacific Investment Management Co. (PIMCO) in Newport Beach, California, published a report today and said that he believes record low interest rates may cause new asset bubbles for stocks and risky bonds.

Looking At The Market- Analyzing Price & Volume:

Looking at the market, leading stocks came under a little pressure today but for the most part continue to hold up well. The market caught a bid (rallied) in the last hour of trade which is typically an encouraging sign and shows that buyers are still out there and willing to show up and defend support. Highly liquid technology stocks continue to be an important area of strength as investors continue to pile into a very narrow group of stocks. Gold and silver stocks are another important area that continues to outperform. As always, it is imperative to isolate strength and let the market guide you.

18 Nov
Daily Market Commentary

Stocks End Lower On Tepid Economic Data

Market Commentary (11.18.09):

The major averages closed lower after a series of mixed economic data was released. Volume, a critical component of institutional demand, was higher than Tuesday’s levels which marked a distribution day for the Nasdaq but the losses were too small to constitute a distribution day for the NYSE. However, the fact that the major averages were down for most of the session and closed near their intra day highs helps offset that concern. There were 40 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, the same number of issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Economic Data:

The big economic news of the day was released before the market opened, at 8:30 am (EST). In Washington D.C., the Labor Department released a stronger-than-expected consumer price index (CPI) which ignited inflationary concerns. Headline CPI rose +0.3% which was higher than the Street’s forecast for a +0.2% gain.  Core CPI, which excludes food and energy, was unchanged from last month’s reading of a +0.2% gain. However, core prices also topped the Street’s estimate for a +0.1% gain and is the component of the report that the Federal Reserve tends to focus on. The uptick in consumer prices sparked concern that companies will have little room to raise prices this holiday season (which curbs earnings). The primary reason is that the consumer remains weak: unemployment is at a 26-year high of +10.2% and wages fell -5.2% in September from the same period last year. The Commerce Department released a separate report at 8:30am (EST) which showed that housing starts unexpectedly tanked last month. Housing starts (a.k.a registrations for new construction for residential housing units), slid -10.6% in October which was well below estimates. Permits for new construction slid -28.9% from the same period last year which led many to question the sustainability of the housing recovery.

Focus On Price & Volume, Not The Noise

Those of you who have read this commentary over the past 5 years know that we like to analyze the news but pay a lot more attention on how the market reacts to the news. That said, the market has reacted and continues to react rather well to the latest round of economic and earnings data. The vast majority of third quarter earnings are now behind us and the major averages remain perched just under fresh 2009 highs! Barring some unforeseen event, earnings were down for the average company in the S&P 500 for the ninth straight quarter but managed to exceed the average estimate which is one reason why the market’s have reacted rather well to earnings. That, coupled with the notion that the “worst is behind us” explains the market’s collective “take” on Q3 earnings. In addition, economic data, although not impressive, has improved markedly from this time last year which suggests the global government stimulus packages are working. The benchmark S&P 500 has surged a whopping +64% from its 12-year low in March as global GDP rebounded. The eight-month rally has pushed the index’s p/e ratio (i.e. valuation) to 22.3 which is the highest reading since 2002 according to Bloomberg.com. Our two primary concerns regarding this rally remains: the dearth of high quality leadership triggering technical buy signals & waning volume in recent weeks. Continue to focus on our two favorite sectors right now: large cap technology and gold as a good proxy for the market.

17 Nov
Daily Market Commentary

Stocks Up; Dollar Up= Bulls Are Strong!

The Bulls Are Strong!

The bulls flexed their muscles today and sent the major averages higher even as the US dollar rallied! Volume, a critical component of institutional demand, was lower than Monday’s levels which indicated a lack of buying from the institutional crowd. However, the fact that the major averages were down for most of the session and closed near their intra day highs helped offset that concern.

Follow The Leaders

The major averages managed to close above near term support (formerly resistance) as the bulls continue to control this market. Most liquid leaders advanced today which reiterates the importance of keeping a close eye on the leaders. The universe of high ranked leading stocks remains uncomfortably thin which is exactly how this market has been performing since the March lows.

Economic Data:

Turning to the economic front, inflation concerns eased after the government released a weaker than expected producer price index (PPI). The headline reading increased +0.3% last month after sliding -0.6% in September. October’s reading was lower than the Street’s estimate of a +0.5% rebound. However, the “big” news in the report was that the core rate, which excludes food and energy, unexpectedly fell -0.6%, following a -0.1% decline in September. This was lower than the Street’s forecast for a +0.1% gain which helped allay inflation concerns. A separate report showed that the country’s manufacturing sector continued to grow, albeit at a very slow rate. At 1:00pm EST, the National Association of Home Builders released their housing market index which was unchanged at 17 in November and gave investors some clue on how housing starts will fare when the government releases that report tomorrow.

16 Nov
Daily Market Commentary

Stocks & Commodities Rally; Dollar Falls

Stocks and Commodities Rally; Dollar Falls

The major averages rallied smartly on Monday which sent the benchmark S&P 500 Index above resistance and to a fresh 2009 high! Volume, a critical component of institutional demand, was higher than Friday’s levels on both major exchanges; which signaled large institutions were accumulating stocks. Advancers trumped decliners by over a 4-to-1 ratio on the NYSE and by over a 3-to-1 ratio on the Nasdaq exchange. It was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Asia Continues To Help!

Stocks rallied across the globe as the US dollar fell after Asian governments reaffirmed their economic stimulus packages. The 21-member Asia-Pacific Economic Cooperation group, which currently comprises over half of the global economy (approximately +54%), announced that they will maintain their massive economic stimulus packages well into 2010. The greenback fell to a fresh 15-month low which sent a host of dollar denominated assets higher: mainly stocks and commodities. The Dollar Index, which measures how the dollar performs against six other currencies, fell to 74.820 and touched 74.679 which was the lowest level since August 2008. The Reuters/Jefferies CRB Index of 19 raw materials jumped  2.9% which was its largest single day advance since August! The weaker dollar helped send gold to another record high which lifted a slew of gold stocks in its wake.

Economic News:

Turning to the economic front, the US government said retail sales grew +1.4% in October.  A slew of retailers jumped on the news as investors bet the forthcoming holiday season will top estimates. Several of the country’s largest credit card issuers rallied after reporting charge backs (i.e. bad loans) fell for a sixth straight month. American Express Co. (AXP) jumped to a fresh 2009 high as volume swelled. This was another stronger-than-expected economic data point which suggests the economic recovery is in full force. Elsewhere, Federal Reserve Chairman Ben Bernanke gave a speech to the Economic Club in New York and said economic “headwinds” remain in the economy. He also said that, “Significant economic challenges remain… The flow of credit remains constrained, economic activity weak and unemployment much too high. Future setbacks are possible.” He also noted that we are in a much better place in Q4 2009 vs Q4 2008.  It is important to note that the S&P 500 has rebounded +64% from its 12-year low in March which is a very impressive feat! Turning to the market, leadership remains very thin which only reiterates Jesse Livermore’s advice; Follow The Leaders!

13 Nov
Daily Market Commentary

Week In Review: Stocks Confirm New Rally

The major averages confirmed a new rally attempt and ended higher for the week as investors digested the latest round of earnings and economic data. However, this was the second consecutive week that volume, a critical component of institutional demand, receded as the major averages advanced. Normally, one would like to see volume expand as the market rallies and contract when the market declines. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.
On Monday, stocks scored a follow-through day (FTD) after the Group of 20 largest industrial nations agreed to maintain their economic stimulus package as the global economy continues to recover. It is important to note that this market remains very strong. On every rally since the initial lows in March 2009, each pullback has been less than -8% and the bulls have promptly showed up to quell the bearish pressure and send stocks higher. The latest correction began on October 28, 2009 and ended on November 9, 2009 when this rally-attempt was confirmed. To avoid any confusion, the official status of the market changed from “rally attempt” to “confirmed rally.” Now that the market is back in a confirmed rally, growth investors have a green light for buying stocks when they trigger fresh technical buy signals and break out of sound bases. The stock market remains strong as long as the US dollar continues to fall and the global economic stimulus package continues.
On Tuesday, stocks ended mixed as investors digested the latest round of economic data. The National Association of Realtors said that home prices fell in 8out of every 10 US cities last quarter. Sellers continue to lower prices to attract buyers which has caused the price of the average home to decline to$177,900 which is -11% below Q3 2008’s levels. Distressed sales, a.k.a. deeply discounted sales, made up 30% of all deals according to their data. The good news in the report was that home sales rose and two dozen cities saw home prices actually climb! Remember, the ideal scenario for the real-estate market to recover will be higher home prices coupled with more sales.
On Wednesday, stocks rallied and sent the benchmark S&P 500 Index to a fresh 2009 high. China reported that its industrial production surged thanks in part to strong demand. This bodes well for the global economic recovery and helps allay concern that the 8-month rally in global equities is exaggerated. Elsewhere, the Fed signaled they do not plan on raising rates any time soon. This also removed a ton of pressure on those that subscribe to the notion that the stock market’s 8-month advance was due to a massive government induced liquidity driven rally. The underlying notion is that banks are able to borrow money near record lows and then use that money however they may see fit.
On Thursday, the stock market and a slew of commodities sold off as the US dollar rallied. The US dollar rallied against 15 of 16 major currencies after the Federal Deficit soared to a new record of $176.4 billion  in October. Stocks sold off after Hewlett-Packard (HPQ) announced plans to acquire 3Com (COMS). 3Com surged a whopping +31% on the news and enjoyed its single largest advance since 2007 on the $2.7 billion deal. This helped send a slew of computer networking stocks higher.
Stocks shook off negative news regarding consumer sentiment and ended higher on Friday. So far, over 80%of S&P 500 companies that reported Q3 results have topped estimates which has helped the market hold up rather well considering that profits were negative for a record ninth consecutive quarter. What does all this mean for growth investors? Be patient and continue to watch for leading stocks to breakout of sound bases. Do not force a trade and let the market come to you; i.e. do not chase. It is also important to remain cognizant of what is working in this environment: mainly buying very liquid large cap leaders as they bounce off their 50-day moving average line or breakout of sound bases. Some of those leaders include: Apple Computer (AAPL), Amazon (AMZN), Priceline.com (PCLN), Google (GOOG), and Baidu Inc. (BIDU). The action in these names have served as a great proxy for the overall rally which began in March 2009. Jesse Livermore’s timeless advice is true once gain, “Follow The Leaders.”

12 Nov
Daily Market Commentary

Stocks Fall As Dollar Rallies; S&P 500 Tracing Out A Possible Double Top?

Major Averages End Lower

The major averages ended lower as the US dollar surged on Thursday. Volume, a critical component of institutional demand, was higher on both major exchanges which marked the latest distribution day for the popular indexes. Decliners trumped advancers by about a 4-to-1 ratio on the NYSE and by about a 3-to-1 ratio on the Nasdaq exchange. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange but the number of actual leaders breaking out of sound bases remains very light.

The stock market and a slew of commodities sold off on Thursday as the U.S. dollar rallied. The greenback rallied against 15 of 16 major currencies as the Federal Deficit soared to a new record of $176.4 billion  in October. Elsewhere, billionaire investor Warrent Buffett said the financial panic is over and will be participating in a town hall event with fellow billionaire Bill Gates at Columbia University this evening.
Stocks sold off after Hewlett-Packard (HPQ) announced plans to acquire 3Com (COMS) for $2.7 billion. 3Com surged a whopping +31% on the news and enjoyed its single largest advance since 2007. This helped send a slew of computer networking stocks higher.

S&P Hits 13-Month High

Technically, the S&P 500, which hit a fresh 13-month high on Wednesday, failed to stay above the 1,100 mark for a second straight day. Since late October, 1100 has served as important resistance as investors continue to digest the latest round of earnings and economic data. That said, the fact that the S&P 500 remains perched below 1100 after having rallied +61% from its 12-year low in March and recovered nearly half of its steep decline from its all-time high in October 2007 is a very impressive feat. The S&P 500 currently sports a price-to-earnings (p/e) ratio of 21.81 which is the highest level since 2002. So far, over eighty percent of S&P 500 companies that reported Q3 results have topped estimates which has helped the market hold up rather well considering that profits were negative for a record ninth consecutive quarter.
What does all this mean for growth investors? Be patient and flexible with your approach. As always, continue to watch for leading stocks to breakout of sound bases before committing your capital. Do not force a trade, instead, let the market come to you; i.e. buy right and do not chase stocks. It is also important to remain cognizant of what is working in this environment: mainly buying very liquid large cap leaders as they bounce off their 50-day moving average lines or breakout of sound bases. Some of these leaders include: Apple Computer (AAPL), Amazon (AMZN), Priceline.com (PCLN), Google (GOOG), Baidu Inc. (BIDU) and Goldman Sachs (GS). The action in these names has served as a great proxy for the overall rally which began in March 2009. The timeless advice of famed investor Jesse Livermore remain true today: “Follow The Leaders.“

11 Nov
Daily Market Commentary

Gains On Lighter Volume Reveal Lackluster Buying Demand

Major Averages Rally

The major averages rallied on Wednesday, sending the benchmark S&P 500 Index to a fresh 2009 high on positive economic and political data. However, volume, a critical component of institutional demand, was reported lower on both major exchanges. That signaled that large institutions were not aggressively buying stocks. Advancers led decliners by about a 3-to-2 ratio on the NYSE and on the Nasdaq exchange. There were 47 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, higher than the 36 issues that appeared on the prior session. In terms of new leadership, it was encouraging to see new 52-week highs outnumber new 52-week lows on the NYSE and Nasdaq exchange.

Chinese Industrial Demand Surges

Overnight, China reported that its industrial production surged thanks in part to strong demand. This bodes well for the global economic recovery and helps allay concern that the 8-month rally in global equities is exaggerated. Elsewhere, the Fed signaled they do not plan on raising rates any time soon. This also removed a ton of pressure on those that subscribe to the notion that the stock market’s 8-month advance was due to a massive government induced liquidity driven rally. The underlying notion is that banks are able to borrow money near record lows and then use that money however they may see fit. Most financial institutions have earned tremendous profits in recent quarters thanks in part to the relative ease of borrowing money. In general, people don’t like to hold cash (especially when rates are near zero), instead they prefer to invest it. That basically summarizes the robust move we have seen in global capital markets in recent months.
The S&P 500 Index, which skidded -38% in 2008, has rebounded +62% from a 12-year low in March. So far, approximately eighty percent of S&P 500 companies have released their Q3 results and the market’s reaction of late has been muted at best. At the beginning of earnings season, the market was steady, then sold off, then bounced back over the past week and a half as buyers showed up and bought shares. The average company in the S&P 500 that has reported their Q3 results have topped estimates according to the latest data provided by Bloomberg.com. The government reported that Q3 GDP rose last month which in part helped companies beat estimates.

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