Thursday, February 10, 2011
Stock Market Commentary:
Stocks opened lower after the Bank of England held rates steady and a handful of earnings disappointed. However, the bulls quickly showed up, defended support, and quelled the bearish pressure which is positive sign. It is encouraging to see leading stocks and the major averages continue to respond well to the recent slew of stronger-than-expected earnings that have been released. The fact that the major averages bounced back sharply after a very brief pullback illustrates how strong this 24-week rally actually is.
Bank of England Holds Rates Steady; Earnings Disappoint:
Aftern Wednesday’s close, Cisco Inc. (CSCO) reported another disappointing quarter and slid in after hours trade. The stock, which is a large component of the Nasdaq 100, dragged futures lower which set the stage for a weak open on Thursday. Before Thursday’s open, Pepsico (PEP), the world’s second largest soft drink manufacturer, said earnings topped estimates but lowered guidance due to higher commodity prices. This put pressure on shares because investors tend to focus on where a stock is going, not where it has been. Elsewhere, weekly jobless claims fell to the lowest level since 2008 which was a welcomed sign for the ailing jobs market.
Overseas, the Bank of England decided to hold interest rates steady at a record low of 0.5% for another month Thursday, even though the likelihood that the annual inflation rate will rise to more than double the bank’s target in the near future. The BOE’s target inflation rate is 2% which is inline with historical data.
Market Action- Confirmed Rally; Week 24
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.