Earnings Season Begins; Stocks Rally

Tuesday, January 11, 2011
Stock Market Commentary:

The major averages rallied as earnings season officially begins. Heretofore, market internals remain healthy evidenced by broad leadership, favorable volume patterns, a rising advance/decline line, and a healthy number of new highs on both major exchanges.

Euro Woes Ease & Earnings Season Begins:

On Tuesday, Japan said that it will join China and begin buying euro debt to help ease pressure on the troubled euro zone. The euro barely budged on the news and remains below last months low which is not a healthy sign. After Monday’s close, Alcoa (AA) kicked off earnings season when they released their latest quarterly results. A handful of other companies also reported numbers which topped estimates. From our point of view, we tend to focus on two components: the actual report and how the stock (and the major averages) react to the number. Based on the recent market action, we are most likely going to encounter a very strong earnings season.

Market Action- Market In Confirmed Rally Week 20

It was encouraging to see the bulls show up in November and defend the major averages’ respective 50 DMA lines. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.

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