Strong Start to Shortened Holiday Week

Tuesday, January 18, 2011
Stock Market Commentary:

The major averages opened lower but closed near its highs as traders returned from a long 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 & Latest Economic News:

US markets were closed on Monday in observance of the MLK holiday. Overseas stocks ended mixed as the USD rallied. Over the weekend, China tightened its reserve requirements (again) in its latest attempt to curb its red-hot economy and curtail inflation. The latest round of earnings were mixed to slightly higher which bodes well for this 21 week rally. We are now in the heart of earnings season with many large companies slated to release earnings in the next few days/weeks (C, AAPL, GOOG, IBM, DAL, etc.). Elsewhere, US economic news was mixed; mfg in the NY area rose while home builders confidence fell (due to tough access to credit).

Market Winning Streak: Continues

According to data compiled by Bespoke Investment Group, “The Nasdaq-100 climbed to the highest level since February 2001 on Jan. 14 and the S&P 500 closed at the highest since August 2008. The S&P 500 has advanced for seven straight weeks, the longest rally since May 2007. Since 1928, gains of that length for the S&P 500 were followed by an average rally of 0.8 percent in the eighth week and 1.3 percent over a month.”

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. 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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