Stocks Negatively Reverse

Tuesday, March 01, 2011
Stock Market Commentary:

Stocks negatively reversed (opened higher but closed lower) on Tuesday as traders digested the recent three day move. The current crisis in the Middle East remains in flux which is putting upward pressure on gold and oil and downward pressure on equities. The benchmark S&P 500 is up nearly 100% from its March 2009 low, and still about -15% off its all time high from October 2007. On average, market internals remain healthy as the major averages bounced after finding support near their respective 50 DMA lines in late February.

ISM MFG Grows, Bernanke & Geithner Testify, Goldman Sachs Insider Trading Case:

Stocks opened higher but closed lower after news spread that Goldman Sachs (GS) was involved in an insider trading suit. The ISM Manufacturing index in the U.S. rose in February at the fastest pace since May 2004 as factories added workers and increased production. The ISM’s factory index jumped to 61.4 from 60.8 in January. This was over the boom/bust level of 50. Manufacturing data in Europe jumped to the highest level in 10 years while manufacturing data in China fell to a six month low. Elsewhere, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner testified on Capital Hill where they largely reiterated their recent stance on monetary policy and an improving economic recovery.

Market Action- Rally Under Pressure; Week 27

It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November, January, and late February. From our point of view, the market remains in rally-mode 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 were a bit extended in recent months and this pullback (back to the 50 DMA lines) is very healthy as it shakes out the weaker hands and restores the the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.

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