21 Dec
Daily Market Commentary

Nasdaq Hits Fresh 2009 High As Dollar Rallies

Monday, December 21, 2009

Market Commentary:

The major averages rallied on Monday as the latest round of merges and acquisitions were announced. As expected, volume, an important indicator of institutional sponsorship, was lower than Friday’s quadruple witching inflated levels. Advancers led decliners by over a 2-to-1 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. There were 43 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 26 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.

U.S. Dollar & Stocks:

It was encouraging to see the major averages rally even as the U.S. dollar advanced. Since early December, the inverse relationship between the U.S. dollar and U.S. equities has quietly weakened. For most of this month, the U.S. dollar has steadily advanced but, instead of falling, the major averages have managed to hold their own and move sideways to slighter higher during that period. However, the inverse relationship remains stronger in other dollar denominated assets. For example, gold tumbled nearly -11% from its 2009 high while crude oil slid nearly -15%. Will this be the new norm?
M&A & P/E News:
In recent quarters, U.S. companies are paying some of the largest premiums on record as M&A activity increases. Many analysts believe that this is a sign that executives are growing more bullish about earnings and the economy even after the strongest 8-month rally for the Standard & Poor’s 500 Index in 73 years! Analysts believe that mergers may surge +35% in 2010 and +23% in 2011 as credit begins to flow again. The data, compiled by Sanford C. Bernstein, is based on M&A’s that occurred since 1980. Their research incorporates growth in GDP, corporate earnings and commercial loan volume. That said, the S&P 500’s price to earnings (P/E) ratio is just over 22.2 times its companies’ profits over the past 12 months and is expected to fall to 11.6 when measured against analysts’ 2011 forecast. Of course, the actual results could be different next year but, all things being equal, suggests more M&A news is on the horizon.

Price & Volume Action Is Strong!

It was very encouraging to see the Nasdaq breakout of its current trading range and hit a new 2009 high on Monday! It is also very encouraging to see the Philly Semiconductor Index (SOX) gap higher and hit a fresh 2009 high as well. Meanwhile,the Dow Jones Industrial Average and S&P 500 closed just below 10,500 and 1,120, their respective resistance levels. Apple Inc. (AAPL) closed above its 6-week downward trendline and above its 50 day moving average line which is a healthy sign and bodes well for this 42-week rally.

14 Dec
Blog

30 Stocks With Strong Technical Patterns

Monday, December 14, 2009

Market Overview:

The S&P 500 and Dow Jones Industrial Average closed at fresh 2009 highs on Monday. At this point, the major averages are just below important resistance levels for the year (Full commentary here) and appear poised to move higher. If they manage to close above their respective resistance levels on heavy volume then odds will favor a new leg higher will commence. That said, the above table is a list of 30 stocks that sport strong technical chart patterns.

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11 Dec
Daily Market Commentary

Week In Review- Stocks End Mixed

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.

10 Dec
Daily Market Commentary

Stocks Edge Higher On Mixed Volume

Thursday 12.10.09

Market Commentary:

Stocks rallied on Thursday after healthy trade data helped offset concerns about an increase in weekly unemployment claims. Volume, an important indicator of institutional sponsorship, was mixed when compared to Wednesday’s levels; lower on the NYSE and higher on the Nasdaq exchange. There were 24 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, greater than the total of 13 issues that appeared on the prior session. New 52-week highs outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Economic Data:

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 narrorwed to $32.9 billion in October. The report showed that exports surged thanks in part to a weaker dollar. In addition, exports rose for a sixth consecutive month which bodes well for the U.S. economy.

Timothy Geithner on Capital Hill:

Treasury Secretary Timothy Geithner testified before the Congressional Oversight Panel on Thursday. Geithner wants the government to extend the $700 billion TARP plan as the financial system recovers from last year’s crisis. He said that extending the TARP plan will help U.S. banks remain properly capitalized. Remaining properly capitalized will help financial institutions address potential threats that may arise in the future. Doing this will reduce the need for future government intervention if another financial shock occurs.

Afternoon Weakness:

Around 2:30pm EST, the bears showed up and put pressure on the major averages. The small cap Russell 2000 index turned lower and slid into negative territory after being up for most of the day. The small cap index closed just above its 50 day moving average as it continues working on the right side of its current base. It is also important to note that since the March low, small caps have outperformed their larger cap brethren. However, since the end of Q3, that relationship reversed and large caps are currently outperforming their peers. Leadership remains scarce as many stocks continue building bases.

02 Dec
Daily Market Commentary

Investors Digest Economic Data; Stocks End Mixed

Market Commentary: Wednesday 12.02.09

The major averages ended mixed but in the lower half of their intra day range as investors digested the latest round of economic data. Volume, an important indicator of institutional sponsorship, was lighter than Tuesday’s levels on both major exchanges which helped offset the weak close. Advancers led decliners by almost a 2-to-1 ratio on the NYSE and by a 17-to-11 ratio on the Nasdaq exchange. There were 46 high-ranked companies from the CANSLIM.net Leaders List making a new 52-week high and appearing on the CANSLIM.net BreakOuts Page, one more than the total of 45 issues that appeared on the prior session. Leadership among high-ranked growth stocks had dried up in recent weeks, so the expansion in new highs was a welcome improvement.  New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Economic Data Mixed:

Before Wednesday’s opening bell futures fell after ADP Employer Services, the country’s largest private payrolls company,  said US employers slashed -169,000 jobs last month which topped the –150,000 expected by Wall Street. Investors use the ADP private report as a proxy for the government’s official jobs report which is slated to be released on Friday. Analysts expect that US employers slashed -100,000 jobs last month while the unemployment rate held steady at 10.2%.

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20 Nov
Daily Market Commentary

Stocks Negatively Reverse; Dow Ends Slightly Higher

Week In Review:

The major averages rallied during the first half of the week but the bears showed up in the latter half and erased the gains and sent stocks lower. The Nasdaq, NYSE composite, S&P 500 and small cap Russell 2000 index negatively reversed (open higher and close lower) for the week which is an ominous sign. A negative reversal is a subtle sign that a change in trend may be upon us.

Monday:

Stocks enjoyed healthy gains on Monday which helped send the benchmark S&P 500 index above near term resistance (1100) and to fresh 2009 highs! The US dollar fell after Asian government’s pledged to standby 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!
Turning to the economic front, the US government said retail sales grew +1.4% in October. Several of the country’s largest credit card issuers rallied after reporting charge backs (i.e. bad loans) fell for a six straight month. 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” He went on to say, “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 then where we in the same period last year.

Tuesday:

On Tuesday, stocks opened lower but closed higher even as the dollar rallied. 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.
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.

Wednesday:

The bears showed up on Wednesday and spent the rest of the week sending stocks lower. A slew of economic data was released which led many to question the health of this recovery. 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) due to the fact that 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 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.

Thursday:

On Thursday, stocks got smacked as the dollar continued to rally after 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 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 burden 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.

Friday:

On Friday, European Central Bank (ECB) President, Jean-Claude Trichet signaled that the ECB will begin curbing its efforts to aid ailing banks. Those of you who have read this commentary over the past 5 years know that we like to analyze the news, yet we 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 markets have reacted so 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 has rebounded. The two primary concerns regarding this rally is the dearth of high quality leadership triggering technical buy signals and that volume has waned in recent weeks as the market rallied. Most liquid leaders are still holding up well which bodes well for this rally. The universe of high ranked stocks remains very thin which is exactly how this market has performed since the lows in March.

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