Stocks Rally On Solid Earnings & Economic Data

Wednesday, October 13, 2010
Stock Market Commentary:

Stocks rallied after the latest round of stronger than expected earnings and economic data hit the wires. Volume patterns remain healthy as the major averages continue marching higher. Healthy volume patterns are important because they suggest large institutional investors are aggressively buying, not selling, stocks.   It is also encouraging to see, market internals remain healthy evidenced by an upward sloping Advance/Decline line and the fact that new 52-week highs continue to easily outnumber new 52-week lows on both exchanges.

The rally began overnight when Japan reported machinery orders surged +10.1% compared to a -4.5% decline forecast. More stronger than expected economic data was released in the US when import prices fell in September, reflecting a drop in energy prices. The -0.3% decline in the import-price index topped the median forecast and followed a +0.6% gain in August. Earnings news also topped estimates with companies such as CSX Corp (CSX), Intel Inc. (INTL), and JPMorgan Chase (JPM) releasing their Q3 results. The fact that the market rallied on the news bodes well for this 7-week rally.

Market Action- Confirmed Rally:

So far, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been very strong and stocks are simply pausing to consolidate their recent gains. It was encouraging to see the bulls show up and defend support (formerly resistance) in recent weeks. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. Trade accordingly.

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