Stocks Fall On Sour Economic Data

Thursday, August 19, 2010
Stock Market Commentary:

The major averagers fell on Thursday after weaker-than-expected economic data which suggests the economy may be slowing. Volume totals were reported higher on both major exchanges versus the prior session, which marked the latest distribution day for the the major averages. Advancers led decliners by over a 3-to-1 ratio on the NYSE and by over a 4-to-1 ratio on the Nasdaq exchange. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows on the Nasdaq exchange. There were ony 10 high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, lower than the 26 issues that appeared on the prior session.

Sour Economic Data Hurts Stocks:

Stocks opened lower after after initial jobless claims unexpectedly rose, leading economic indicators and the Philly Fed’s general economic index both fell. The Labor Department said that applications for unemployment benefits in the US jumped to the highest level since November 2009 last week which indicated that more employers are slashing jobs as the economy slows. Initial jobless claims rose by 12,000 to 500,000 in the week ended Aug. 14 and topped the Street’s estimate of 478,000. Meanwhile, the Philadelphia Federal Reserve’s general economic index fell to -7.7 which was below analysts’ estimates and led many to question the health of the economic recovery. In other news, Intel (INTC -3.52%) announced plans to buy McAfee (MFE +57.05%) for $7.68 billion.

Market Action- Rally Under Pressure:

The technical action in the major averages continues to weaken. Currently, resistance for the Dow Jones Industrial Average and the benchmark S&P 500 index is their respective 200 DMA lines, while the Nasdaq composite faces resistance at its 50 DMA line. It is also disconcerting to see the action in several leading stocks remain questionable at best evidenced by the dearth of high ranked leaders breaking out of sound bases. Thursday’s action wiped out the gains enjoyed earlier in the week for the major averages which emphasizes the importance of remaining cautious until the rally is back in a confirmed uptrend. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.

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