Stocks Negatively Reverse After Big Move

Wednesday, January 19, 2011
Stock Market Commentary:

The major averages fell after housing starts and Goldman Sachs (GS) earnings fell. It was a bit worrisome to see the major averages negatively reverse from a new recovery high and close lower on the day. This ominous action, especially after a big move and from a new high, suggests a subtle change in trend may be on the horizon. We are shifting our stance from capital appreciation mode; to capital preservation (i.e. we are locking in gains and tightening stops to protect from further downside action).

Earnings & Economic Data:

After Tuesday’s close, Apple Inc. (AAPL) and IBM (IBM) reported sound numbers which helped futures edge higher in overnight trade. However, the bears showed up on Wednesday, when, investment giant, Goldman Sachs (GS) said earnings fell short of estimates last quarter which echoed Citigroup’s (C) lackluster quarter. This put pressure on a slew of financials and the broader averages. Elsewhere, housing starts fell -4.3% to a 529,000 annual rate which bodes poorly for the ailing housing market. The report fell short of the Street’s estimates and was the lowest reading since October 2009.

Market Action- Market In Confirmed Rally; Week 21

It was encouraging to see the bulls show up in November and defend the major averages’ respective 50 DMA lines. 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. If you are looking for specific high ranked ideas, please contact us for more information.

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