Stocks Down; End Near Session Highs

Thursday, January 20, 2011
Stock Market Commentary:

The major averages ended mixed after a slew of earnings and economic data was released. It was a bit worrisome to see the major averages negatively reverse from a new recovery high and close lower on Wednesday. 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).

Earnings & Economic Data:

Since Wednesday’s close, Ebay (EBAY), F5 Networks (FFIV), and Morgan Stanely (MS) released their latest quarterly results. EBAY and MS rallied on the news while FFIV gapped down over –20%. Google is slated to release its numbers after Thursday’s close. 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%.

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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