Cautious Follow-Through Day Confirms New Rally

Tuesday, March 2, 2010
Market Commentary:

The paper categorized Monday’s gain as a “cautious follow-through day” which confirmed the latest rally attempt. Stocks edged higher on Tuesday after India’s economy grew nicely last year and speculation spread that the European Union will bail out Greece. Volume, a critical gauge of institutional demand, was reported higher on both major exchanges compared to Monday’s levels. Advancers led decliners by a nearly a 3-to-1 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs trumped new lows on both exchanges which was another welcome sign while there were 76 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, up from the 69 issues that appeared on the prior session.

India’s Economy Lifts Stocks:India, one of the world’s strongest emerging markets, said its economy rose nicely last year and quarter thanks in part to strong increases in manufacturing and exports. India, China and several other Asian economies have played a pivotal role in helping the global economy recover from one of the worst recessions since WWII. The healthy economic data from India helped support the notion that the global recovery would continue in 2010.

Strong Earnings Data:

Most of the US indexes erased their losses for the year and are now in positive territory which is another healthy sign. The recent batch of healthy economic and earnings data helped the S&P 500 recovery from a -9% slump. So far, over 460 companies in the benchmark index have reported quarterly earnings and approximately +75% have topped analysts’ estimates. Barring some unforeseen event, the S&P 500 is on track to snap a record 9-quarter earnings slump.

Market Action- Confirmed Rally:

Looking at the market, Monday, Day 16, confirmed the latest rally attempt when a “cautious follow-through day” was produced by the Nasdaq composite. This means that the window is now open to begin buying stocks again. Furthermore, it is of the utmost importance to lookout for any distribution days (high volume declines) to emerge within the next few days. Historically, when several distribution days emerge quickly after a FTD the nascent rally attempt is more failure prone. So far, it is a much welcomed sign to see the market continue to improve as investors digest the latest round of stronger than expected economic and earnings data.