Quiet Week on Wall Street

Friday, April 8, 2011
Stock Market Commentary:

Stocks were little changed for the week as the major averages remain perched near fresh post-recovery highs and investors digested a slew of economic and geopolitical news. It is encouraging to see a slew of leading stocks and the benchmark S&P 500, Dow Jones Industrial Average, Nasdaq composite, and small cap Russell 2000 index all close and stay above their respective 50 DMA lines since late March. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines in heavy trade. However, the correction was short lived when a new rally was confirmed on Thursday March 24, 2011′s healthy action. Since then, the action remains healthy which suggests the bulls are back in control of this market.

Monday-Wednesday’s Action:

Stocks opened higher on Monday as traders await the official start to Q1 earnings season. We would be remiss not to note that earnings since the March 2009 low have been very strong. The latest data shows that S&P 500 are on track to surpass the 2007 peak of $90 a share in the third quarter after surging from $7 in March 2009. If that were to occur, than this would be the fastest recovery since at least 1900, according to data from Bloomberg, Standard & Poor’s, and Yale University’s Robert Shiller. The data shows that the difference between projected 12-month earnings and average earnings over the last 10 years is set to widen the most since 1951! This bodes well for the current bull market and Q1 earnings season. Keep in mind, that in addition to focusing on the actual results, we like to focus on how the market and each individual stock reacts to its earnings for a pure read on what the market thinks of the data.

Before Tuesday’s open, China raised its reserve requirement in its latest attempt to curb inflation and its red-hot economy. Elsewhere, Portugal’s debt rating was cut which put downward pressure on the euro. In the U.S., the Federal Reserve released the minutes of its last meeting which largely reiterated their recent stance that the economy continues to improve, albeit slowly. Before Wednesday’s open, Germany, Europe’s strongest economy, said manufacturing data topped estimates which bodes well for the global recovery. German manufacturing rose +2.4% in February which easily topped the +0.5% increase expected on the Street.

Thursday & Friday’s Action: Bank of England Holds Rates Steady, ECB Raises Rates, & U.S. Jobless Claims Fall:

Before Thursday’s open, the Bank of England (BOE) decided to hold rates steady as their economy continues to improve and inflation remains at bay. As expected, the ECB raised rates by +0.25 basis points to 1.25% which was their first rate hike since July 2008! Jean Claude Trichet, president of the ECB, said last month that April’s rate hike will “certainly not be the start of a series (of additional hikes) and was only a preemptive measure to curb inflation. In related news, Portugal asked the EU for an emergency bailout as that country’s finances continue to deteriorate.

In the U.S., the Labor Department said jobless claims fell –10,000 to 382,000 last week which is an encouraging sign for the ailing jobs market. Elsewhere, a slew of large retail stores reported same store numbers which failed to impress the Street. Less than one hour after the open, Japan was rocked with a 7.1 magnitude earthquake which sent stocks into the red. However, after the knee-jerk reaction, the major averages edged higher and were quit for the rest of the day. Stocks opened higher on Friday but ended little changed as a rather quiet week came to an end and the U.S. government faced a shut-down due to a ballooning deficit.

Market Action-Confirmed Uptrend

The market is back in a confirmed uptrend after a modest (and healthy) -6% correction from its post-recovery highs. We find it bullish to see the mid-cap S&P 400 index and the small cap Russell 2000 index both hit fresh all-time highs! In addition, the Dow Jones Industrial Average vaulted to a fresh post-recovery high and the S&P 500 and Nasdaq composite are just shy of fresh 2011 highs. In other news, a slew of other markets vaulted to fresh recovery highs most notably: crude oil, euro, gold, and silver which bodes well for the “risk on” trade and by extension U.S. equities. Finally, we are very happy to see a slew of high ranked stocks trigger fresh technical buy signals in recent weeks which suggests higher, not lower prices lie ahead. If you are looking for specific help navigating this market, please contact us for more information.


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