Day 14: Stocks Close Below Resistance

Thursday, February 25, 2010
Market Commentary:

Stocks closed lower but off their intraday lows after the US dollar pulled back as concern eased over tepid economic data and the fate of the EU. Volume, a critical gauge of institutional demand, was higher than Wednesday’s totals which suggested large institutions were selling stocks. Decliners led advancers by a 10-to-9 ratio on the NYSE and by a 16-to-11 ratio on the Nasdaq exchange. New 52-week highs outnumbered new lows on both exchanges. There were 10 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 than the 14 issues that appeared on the prior session.

EU Fears & Tepid Economic Data Send Stocks Lower:

After a 7-week decline, the euro managed to positively reverse on higher volume than the prior session. If this nascent rally continues, it will bode well for dollar denominated assets; mainly stocks and commodities. The primary concern which sent the dollar soaring (euro plunging) in recent weeks was the risk of default from Greece, Spain and Portugal. On Thursday, fear spread after Moody’s Investors Service (MCO) said it may downgrade Greek debt.

Sour Economic Data Hurts Stocks:

In the US, stocks opened sharply lower after two disconcerting economic reports missed estimates. At 8:30am est, the Labor Department said initial jobless claims rose by +22,000 to +496,000 in the week ended Feb. 20 which was the highest level in three months. In a separate report, the Commerce Department said US durable goods excluding transportation equipment slid by -0.6% in January. This was the largest monthly decline since August and missed the Street’s estimate for a +1% increase.

Market Action- In A Correction:

Looking at the market, Thursday marked Day 14 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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