Stocks End Mixed on Shortened Holiday Week

Friday, January 21, 2011
Stock Market Commentary:

The major averages ended mixed this week as a slew of earnings and economic data were released across the globe. It was a bit worrisome to see the major averages negatively reverse from a new recovery high and close lower on Wednesday and Thursday. This ominous action, especially after a big move and from a new high, suggests a subtle change in trend may be on the horizon. We are shifting our stance from capital appreciation mode; to capital preservation (i.e. we are locking in gains and tightening stops to protect from further downside deterioration).

Monday-Wednesday’s Action: Negative Reversal Rocks The Street

US markets were closed on Monday in observance of the MLK holiday. Overseas stocks ended mixed as the USD rallied. Over the weekend, China tightened its reserve requirements (again) in its latest attempt to curb its red-hot economy and curtail inflation. Stocks edged higher on Tuesday after the latest round of U.S. economic data was mixed; mfg in the NY area rose while home builders confidence fell (due to tough access to credit).

On Wednesday, stocks negatively reversed (opened higher but closed lower) after hitting a fresh recovery high. After Tuesday’s close, Apple Inc. (AAPL) and IBM (IBM) reported sound numbers but the bears showed up before Wednesday’s open, when, investment giant, Goldman Sachs (GS) said earnings fell short of estimates. This disconcerting result echoed Citigroup’s (C) lackluster quarter which put pressure on a slew of financials and the broader averages. Elsewhere, housing starts fell -4.3% to a 529,000 annual rate which bodes poorly for the ailing housing market. The report fell short of the Street’s estimates and was the lowest reading since October 2009. Overseas China said its economy expanded over 10% last year which sparked concern that more reserve hikes were on the horizon.

Thursday & Friday’s Action: Earnings & Economic Data Top Estimates

After Wednesday’s close, Ebay (EBAY), F5 Networks (FFIV), and Morgan Stanely (MS) released their latest quarterly results. EBAY and MS rallied while FFIV gapped down over –20%. Google reported strong numbers after Thursday’s close and reported Larry Page will step in as CEO. On average the economic data bodes well for the ongoing recovery. The Labor Department said weekly jobless claims fell by -37,000 last week which bodes well for the ailing jobs market. Elsewhere, the National Association of Realtors said that existing home sales jumped +12% in December to a 5.28 million annual rate while the Conference Board’s gauge of economic indicators rose 1%. Before Friday’s open, General Electric (GE) and Bank of America (BAC) reported their latest quarter result which helped the market rally on Friday. Overseas, business confidence rose in Germany and France which bodes well for the troubled Euro Zone.

Market Action- Market In Confirmed Rally; Week 21

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. If you are looking for specific high ranked ideas, please contact us for more information.

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