Day 4: Stocks End Lower

Wednesday, February 10, 2010
Market Commentary:

Stocks closed lower on speculation that the European Union will not bailout Greece. Volume was reported lower than the prior session on the NYSE and the Nasdaq exchange. Decliners led advancers by a small margin on the NYSE and the Nasdaq exchange. There were 6 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, down from the 9 issues that appeared on the prior session. New 52-week highs outnumbered new 52-week lows on the NYSE and matched new lows on the Nasdaq exchange.

Greece & Bernanke:Stocks spent the session trading between positive and negative territory as Germany and France discussed plans to help their troubled neighbors and the latest comments from Federal Reserve Chairman Ben S. Bernanke were released. EU leaders are slated to meet in Brussels on Thursday to discuss a workable solution to the ballooning debt crisis. Analysts believe that the EU will ask Greece to continue trimming their over sized budget but will stop short of offering a full bailout package. Greek citizens flocked to the streets, protested and were on strike as the country falls deeper into debt. The massive protests shut down schools, hospitals and flights in response to government plans to freeze wages and cut benefits as the nation tackles the largest deficit in the EU. Elsewhere, Bernanke said that he plans to raise interest rates “before long” which puts future rate hikes back on the table.

Earnings News:

On the earnings front, so far, over 330 companies in the S&P 500 have released their Q4 results and approximately +76% have topped analysts’ estimates which will likely help the benchmark index snap a record nine quarter earnings slump. Bloomberg released a survey of professional investors that showed investor confidence in the global economy fell in February on concern that sovereign debt will hinder economic growth. The Bloomberg Professional Global Confidence Index slid to 54.9 from 66.6 in January.

Market Action: In A Correction

Looking at the market, as long as last Friday’s lows are not breached, the window is now open for a new follow-through day (FTD) to emerge. A new FTD will be confirmed when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders breakout of sound bases. However, if last Friday’s lows are breached then the day count will be reset and a steeper correction may unfold.

It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now acting as resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts.