Day 12: Stocks Fall On Heavy Volume

Tuesday, February 23, 2010
Market Commentary:

The major averages ended lower as volume totals exceeded Monday’s levels on the 12th day of the current rally attempt which suggests large institutions are selling stocks. Decliners led advancers by a 27-to-11 ratio on the NYSE and by a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs outnumbered new lows on both exchanges. There were 10 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 24 issues that appeared on the prior session.

Poor Economic Data Sends Stocks Lower: US Consumer Confidence & German IFO IndexThe two major catalysts which sent stocks lower on Tuesday were a weaker than expected reading on US consumer confidence and German business. The Conference Board’s index of US consumer confidence slid to 46 which was the weakest reading in ten months and below the lowest forecast in a Bloomberg survey. It is important to note that consumer spending currently makes up approximately +75% of the US economy. Therefore, the disappointing reading on consumer confidence bodes poorly for the economic recovery.

Elsewhere, the Ifo institute’s German business climate index fell in January as the coldest winter in 14 years hurt retail sales and construction in Germany. The ominous economic reports suggest that the 11-month global economic recovery may be in jeopardy and increased the odds of a double dip recession. The disconcerting news also sent the US dollar higher which added pressure on dollar denominated assets (i.e. stocks and commodities).

Market Action- In A Correction:

Looking at the market, Tuesday marked Day 12 of a new rally attempt which means that as long as the February 5th lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders break out of fresh bases. However, if the February 5, 2010 lows are breached then the day count will be reset and a steeper correction may unfold. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data which remains a concern. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is paramount.

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