Stocks Fall on Negative Economic & Earnings Data

Thursday, January 28, 2010
Market Commentary:

Stocks got smacked on Thursday as the dollar and shorter-term Treasuries rose after a series of negative economic data was released. Volume totals were higher on both exchanges compared to the prior session which suggested that large institutions were aggressively selling stocks. Decliners trumped advancers by well over a 2-to-1 ratio on the NYSE and on the Nasdaq exchange. There were 9 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 10 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.

Obama’s State Of The Union & Bernanke Reconfirmed:

The major averages negatively reversed, effectively ended their latest rally attempt and reset the day count after a slew of weaker than expected economic and earnings data was released. Stocks reacted poorly to Obama’s first State of the Union address largely due to his plan to increase taxes on the upper class and his plan to end proprietary trading and hedge-fund investments at large banks. Some highlights from his speech were: “the worst of the storm has passed, we face a deficit of trust, and I’m not interested in punishing banks.”

Over the past ten days, investors were concerned that Congress would not reconfirm Federal Reserve Chairman Ben S. Bernanke for a second term. However, those concerns were allayed four minutes before the closing bell when CNBC reported that Bernanke received enough votes for a second term.

Tech Stocks Get Smacked As The Dollar Rallies:

Large cap technology stocks got smacked on Thursday after Qualcomm Inc. (QCOM -14.24%) gapped lower after lowering guidance for 2010. Qualcomm, the largest manufacturer of mobile-phone chips, said a “subdued” economic recovery caused the company to lower its forecast. A host of other large cap tech stocks got smacked on similar concerns. The Dollar Index, which tracks the greenback against six major counterparts, rallied for a third straight day which put pressure on dollar denominated assets; mainly stocks and commodities.

Economic Data Is Weak: Jobless Claims & Durable Goods Miss Estimates:

The economic data of the day was less than stellar. Durable goods missed estimates and experienced its largest decline in history in 2009! The report, which tracks goods made to last at least 3 years, showed that the manufacturing sector was slowly improving. In December, new orders rebounded +0.3% after a revised -0.4% decline in November. Excluding the highly volatile transportation component, new orders rose another +0.9%, following a +2.1% rebound in November. However, for the year, the number plunged over -20% which was the worst annual decline on record. Elsewhere, investors were disconcerted to see that jobless claims fell -8,000 last week to 470,000 (prior week revised -4,000 lower to 478,000). The smoother four week average rose +9,500 to 456,250 for a second straight week but the overall report suggests that the jobs market is still weak.

Market Action- In A Correction:

Looking at the market, Thursday’s ominous action took out Wednesday’s lows and effectively ended the brief rally attempt which suggests a steeper correction may unfold. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now acting as resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is paramount.

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