Stocks Rally On Strong Housing Data

Monday, October 25, 2010
Stock Market Commentary:

Stocks, oil, and gold opened higher as the dollar fell, after the G-20 concluded their meeting in South Korea over the weekend. Volume patterns remain healthy as the major averages have now begun the 9th week of their ongoing rally. However, it is important to note that there have been an ominous number of distribution days that have emerged in the popular indexes in recent sessions which suggests caution. On average, 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.

G-20 Meeting & Housing Data:

Over the weekend, the G-20 met in South Korea and agreed to a major overhaul for the International Monetary Fund (IMF). The change represents a shift in the global economic power, away from the developed world and into the emerging markets. The overhaul will increase the IMF’s role in managing the global economy and will give emerging nations more control on how the organization is run.  The overhaul will also give over +6% of the IMF voting rights to countries such as China and India, while Europe will giveup two board seats. The G-20 also decided to give the IMF a role in monitoring global trade imbalances and exchange rates.

In the US, existing homes jumped +10% in September which was the highest jump on record and a welcomed sign for the ailing housing market. The National Association of Realtors said existing home sales rose to a 4.53 million annual rate, up from 4.12 million in August. This topped the Street’s estimate for an increase to a 4.3 million. However, the report did show that the median price slid -2.4% from a year earlier.

Market Action- Confirmed Rally, Week 9:

Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market action has been wide-and-loose which is not a healthy sign. The S&P 500 sliced below its two month upward trendline (shown above) which is an ominous sign. 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. We have enjoyed large gains since the September 1st FTD and for the first time, the tape is getting sloppy.  Trade accordingly.

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