Day 8: Both Stocks & The US Dollar Rally


Wednesday, February 17, 2010
Market Commentary

The major averages ended higher on the 8th day of their current rally attempt after the latest round of healthy economic and earnings data was released. Volume, a critical indicator of institutional sponsorship, was mixed; higher on the Nasdaq and lower on the NYSE compared to the prior session. Advancers led decliners by a 2-to-1 ratio on the NYSE and by a 16-to-11 Nasdaq exchange.  New 52-week highs outnumbered new lows on both exchanges.  There were 27 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, down from the 35 issues that appeared on the prior session.

Both Stocks & The Greenback Rally:

It was interesting to see both stocks and the US dollar rally on Wednesday after upbeat earnings and economic data was released. Healthy earnings from Deere & Co (DE +5.02%), Whole Foods Market Inc. (WFMI +12.55%) and Hewlett-packard Co (HPQ +1.38%) helped the bulls send stocks higher. So far, three-quarters of S&P 500 companies have posted stronger than expected Q4 results which bodes well for the US economy.

Healthy Economic Earnings Data Lifts Stocks:

On the economic front, the government said housing starts and industrial production topped the Street’s estimates as the economy continues recovering from the worst recession since WWII. In other news, the minutes from last month’s FOMC meeting were released which showed Fed officials debated how and when to shrink the central bank’s $2.26 trillion balance sheet. The minutes also showed that some officials want to begin selling assets in the “near future” while others are more content to wait until the economy stabilizes.

Market Action- In A Correction:

Looking at the market, the major averages closed with modest gains on Wednesday as the major averages consolidate their recent move. As long as 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 breakout of sound bases. However, if the February 5, 2010 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 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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