Stocks Look Past China’s Surprise Rate Hike

Monday, December 27, 2010
Stock Market Commentary:

The major US averages barely budged on Monday after China’s surprise rate hike over the weekend. Heretofore, market internals remain healthy evidenced by broad leadership, favorable volume patterns, a rising advance/decline line, and a healthy number of new highs on both major exchanges.

China’s Surprise Rate Hike:

Over the weekend, China’s central bank decided to raise rates by +0.25% to 5.8%, which is still lower than the 2007 high of 7.8%. The move was designed to combat rampant inflation and curb their red hot economy. In recent months, China has steadily raised their reserve requirements on banks in an attempt to curb the economy and inflation.  A slew of commodities fell on the news (based on the simple notion that a slower economy will curb demand for commodities). Looking forward, a slew of economic data is slated to be released in the final week of the year and it will be very interesting to see how stocks react to the news.

Market Action- Market In Confirmed Rally Week 18

It is encouraging to see the bulls show up in November and defend the 50 DMA lines for the major averages. 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. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.

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