Day 13: Stocks Rally On Lighter Volume

Wednesday, February 24, 2010
Market Commentary:

The major averages rallied on the 13th day of the current rally attempt however volume, a critical gauge of institutional demand, fell compared to Tuesday’s totals. The lighter volume behind today’s advance signals large institutions are not aggressively buying stocks. Advancers led decliners by nearly a 3-to-1 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs outnumbered new lows on both exchanges. There were 14 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 10 issues that appeared on the prior session.

Bernanke Testifies; Stocks Advance:Federal Reserve Chairman Ben S. Bernanke spent the day testifying on Capital Hill. His comments helped send stocks higher and the dollar lower after he said the central bank will keep interest rates low to ensure the economy continues to recover. Bernanke told Congress that the Fed will eventually need to tighten monetary policy however we are still in the “nascent” stages of the economic rebound which still requires low interest rates for an extended period. This helped allay concerns that the Fed will begin raising rates more aggressively after last week’s surprise discount rate hike. The Fed has left its federal funds rate, the rate banks charge each other for overnight loans, at a record low near zero for more than 14 months as the economy continues to recover.

Poor Home Sales & The Jobs Bill:

Elsewhere, it was disconcerting to see US home sales unexpectedly drop to a record low. The tepid reading illustrates how weak this recovery actually is. In Washington D.C., the Senate approved a $15 billion plan to give companies tax breaks for hiring people. The Senate passed the jobs bill today by 70-28. The bill will now make its way to the House where Democratic leaders must decide whether to pass it without changes or to try to merge it with a $150 billion jobs bill it approved in December.

Market Action- In a Correction:

Looking at the market, Wednesday marked Day 13 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 paramount.

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