27-Week Rally Continues!

Monday, February 28, 2011
Stock Market Commentary:

Stocks rallied on Monday after finding support near their respective 50 DMA lines last week. The current crisis in the Middle East remains in flux which is putting upward pressure on gold and oil. The benchmark S&P 500 is up 100% from its March 2009 low, and still about -14% 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.

Consumer Spending, Personal Income Rise; Pending Home Sales Fall:

Consumer spending in the U.S. rose but fell short of estimates last month due to higher food and energy prices. The Commerce Department said purchases rose +0.2% which was the smallest gain since June and half the median forecast. The report also showed that personal income topped estimates which was largely due to a stronger economy and the recent tax-cut extension. Inflation remained at bay and below the Federal Reserve’s 2% target. Elsewhere, a separate report showed U.S. pending home sales fall -2.8% in January to 88.9. The pending home sales index fell -1.5% compared to the same level last year.

Market Action- Rally Under Pressure; Week 27 Begins

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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