Friday, February 11, 2011
Stock Market Commentary:
For the week, the major averages and leading stocks added to their 24-week rally which is a very healthy sign after successfully defending support (formerly resistance) earlier in the week. It is encouraging to see leading stocks and the major averages continue to respond well to the recent slew of stronger-than-expected earnings and economic data. The fact that the major averages bounced back sharply after a very brief pullback illustrates how strong this 24-week rally actually is.
Monday & Tuesday’s Action:
Stocks opened higher on Monday after a confluence of healthy data set the stage for another strong week. India said it expects its red-hot economy to enjoy its strongest annual rate of growth in nearly three years as the global economic recovery continues to gain momentum! Elsewhere, in Asia, Indonesia said its economy grew at the fastest pace in six years which bodes well for both the Asian growth theme and the global recovery. The latest estimates show that Q4 earnings season was strong with nearly +90% of the companies in the S&P 500 which reported earnings beat or matched expectations while around 10% missed. On Tuesday, China’s central bank raised rates to combat inflation and curb their red-hot economy. This sent a slew of commodities (i.e. crude, copper, etc) lower on concern that demand will wane.
Wednesday- Friday’s Action:
On Wednesday, stocks ended mixed as Fed Chairman Ben Bernanke began his semi-annual Humphrey Hawkins testimony to the US congress discussing the current state of monetary policy and the economy. Aftern Wednesday’s close, Cisco Inc. (CSCO) reported another disappointing quarter and slid in after hours trade. The stock, which is a large component of the Nasdaq 100, dragged futures lower which set the stage for a weak open on Thursday. Before Thursday’s open, Pepsico (PEP), the world’s second largest soft drink manufacturer, said earnings topped estimates but lowered guidance due to higher commodity prices. This put pressure on shares because investors tend to focus on where a stock is going, not where it has been. Elsewhere, weekly jobless claims fell to the lowest level since 2008 which was a welcomed sign for the ailing jobs market.
Overseas, the Bank of England decided to hold interest rates steady at a record low of 0.5% for another month Thursday, even though the likelihood that the annual inflation rate will rise to more than double the bank’s target in the near future. The BOE’s target inflation rate is 2% which is inline with historical data. After Thursday’s close, President Mubarak of Egypt said he will transfer power to his newly appointed VP and remain in office until his term ends. However, this was just a last minute attempt to hold on to any power he has left. Stocks rallied on Friday after consumer confidence in the US rose and Egyptian President Hosni Mubarak stepped down on the 18th day of the peaceful protests all over Egypt.
Market Action- Confirmed Rally; Week 24 Ends
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, 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.