Stocks Pullback After Monday’s Strong Open

Tuesday, January 4, 2011
Stock Market Commentary:

The major US averages rallied smartly on Monday and hit new recovery highs after spending a few weeks in a tight trading range. 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.

Economic Data, Fed Minutes, & Geo Political Woes Dominate The Headlines:

Stocks slid on Tuesday after a Pakistani Governor was shot by his bodyguard and US factories unexpectedly rose in November. US factory orders rose thanks in part to solid gains for capital equipment and strong exports. The Commerce Department said factory orders rose + 0.7% which easily beat the Street’s estimate for a -0.1% decline. The report also showed that orders for capital goods rose +2.6%. The Fed released the minutes of their last meeting which supported QE II and left the door open for additional economic stimulus. Overseas, A prominent Pakistani politician from the ruling People’s Party was assassination by his bodyguard. The politician recently spoke out against the country’s controversial blasphemy laws which is a clearly a controversial and sensitive topic.

Market Action- Market In Confirmed Rally Week 19

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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