Wednesday, February 16, 2011
Stock Market Commentary:
Stocks rallied on Wednesday after the latest round of economic, earnings, & M&A news were released. The benchmark S&P 500 is up 100% from its March 2009 low! The benchmark S&P 500 is up 100% from its March 2009 low! On average, market internals remain healthy as the major averages continue marching higher. The fact that the major averages bounced back sharply after a very brief pullback in January illustrates how strong this 25-week rally actually is.
Housing Starts, PPI, and Industrial Production:
After Tuesday’s close, Dell (DELL), the world’s second largest computer manufacturer said earnings and revenue easily topped estimates. This set the stage for a healthy rally in a slew of tech stocks. The news on the M&A front was also healthy as Sanofi-Aventis (SASY.PA) said it plans to acquire Genzyme (GENZ) for $20.1 billion in cash and activist investor Nelson Peltz’s Trian Group offered to acquire Family Dollar Stores Inc (FDO) for $55 to $60 per share in cash or $7.6 billion.
Housing construction was mixed last month and remained at a very weak levels. Starts advanced while permits fell back. Housing starts rose +14.6% after falling -5.1% in December. Elsewhere, the producer price index (PPI) rose which suggests inflation is accelerating. The headline number rose +0.8%, matching the median forecast. Core prices, which strip out food and energy, rose +0.5% which topped the Street’s estimate for a +0.2% gain. If inflation continues to accelerate, the Fed will have more pressure to raise rates sooner than expected. A separate report showed industrial production falling to 5.2% from 6.3% in December. At 2pm EST, the FOMC released the minutes of its latest meeting which largely reiterated their recent support for QE II.
Market Action- Confirmed Rally; Week 25 Begins
It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November as this market proves resilient and simply refuses to go down. From our point of view, the market remains in a confirmed rally 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 are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.