Day 11: Stocks Consolidate Recent Move

Monday, February 22, 2010
Market Commentary:

Stocks ended lower as volume fell compared to Friday’s totals on the 11th day of the current rally attempt. Advancers led decliners by a small margin on both major exchanges. New 52-week highs outnumbered new lows on both exchanges.  There were 24 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower from 31 issues that appeared on the prior session.

Stocks Down Since Earnings Season Began:Stocks ended lower on the first trading day of this week even after the latest round of M&A news was released and several high profile earnings announcements topped analyst estimates. Barring some unforeseen event, the average company in the S&P 500 is on track to snap a record nine quarter earnings slump as earnings season slows down. It is important to note that even though over +70% of S&P 500 companies have topped the Street’s Q4 estimates, 2010 earnings forecasts have fallen from the beginning of the year. Analysts believe that earnings will grow by +26.3% in 2010 which is down from the +30.6% projected in early January. In addition, the S&P 500 is trading below where it closed when earnings season began which is not a “good” sign.

Housing Market- Foreclosures Fall While Late Payments Soar!

Turning to the ailing housing market, the latest data shows that the rate of delinquencies and new foreclosures fell in the fourth quarter while a new record was set in the number of home loans which are behind on payments. The Mortgage Bankers Association said that the percentage of loans that were in foreclosure or behind at least one payment surged to +15.02% which is the highest since the MBA’s records began in 1972. Many analysts believe that foreclosures will likely stay high for the rest of the year as the economy and the jobs market continue to recover from the worst recession since WWII.

Market Action- In A Correction:

Looking at the market, Friday marked day 11 of a new rally attempt which means that as long as the February 5th lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders break out of fresh bases. However, if the February 5, 2010 lows are breached then the day count will be reset and a steeper correction may unfold. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data which remains a concern. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is king.

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