Stocks Rally On Healthy Economic Data

Thursday, July 8, 2010
Stock Market Commentary:

The major averages rallied one day after posting a new follow-through day (FTD). Volume, a critical component of institutional sponsorship, fell short of Wednesday’s levels while advancers trumped decliners on the NYSE and Nasdaq exchange. However, there were only 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, higher than the 7 issues that appeared on the prior session. Meanwhile, new 52-week lows outnumbered new 52-week highs on the Nasdaq but trailed on the NYSE. It will be critically important for leadership to expand if the new rally effort will prove to be a sustained market advance. If not, Wednesday’s strong move may turn out to be the latest in a string of failed rallies confirmed with follow-through days.

Healthy Economic Data Lifts Stocks:

There were two positive economic data points which helped send stocks higher on Thursday: jobless claims fell and same store sales rose at several key retailers. The Labor Department said initial jobless claims fell by -21,000 to 454,000 last week. This was lower than the Street’s forecast for a decline to 460,000 from an initially reported 472,000 during the prior week. The report showed that the number of people receiving unemployment insurance plunged to the lowest point since 2008, while those getting emergency benefits also fell after Congress failed to pass legislation extending the assistance. Elsewhere, a flurry of high profile retailers also reported stronger than expected same store sales for June. This helped allay concern that the US consumer was spending less due to the economic uncertainty.

Market Action- Confirmed Rally:

Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. Looking forward, the 200 DMA line should now act as near term support as this market continues advancing, while any reversal would be a worrisome sign. It is important to note that the NYSE composite, benchmark S&P 500 index, and the Dow Jones Industrial Average have now all seen their 50 DMA lines undercut their respective 200 DMA lines which is is known as a “death cross” and has bearish ramifications. In addition, remember to remain very selective because all of the major averages are still trading below their downward sloping 50 and 200 DMA lines.  It was somewhat disconcerting to see volume remain light (below average) behind the confirming gains. It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly.

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