Day Count Reset; Market In A Correction 2.4.10


 Thursday, February 4, 2010
Market Commentary:

Stocks got whacked on Thursday sending all of the major averages below Monday’s lows as the dollar rallied. Volume was heavier than the prior session on the NYSE and Nasdaq exchange which signaled large institutions were aggressively selling stocks. Decliners trumped advancers by over a 7-to-1 ratio on the NYSE and over a 6-to-1 ratio on the Nasdaq exchange. There were only XX high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, lower than the 10 issues that appeared on the prior session. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed on the Nasdaq exchange.

Dollar Up; Stocks & Commodities Down:

Stocks and commodities got smacked as the dollar rallied after concern spread that the global economic recovery may slow. Before Thursday’s opening bell, the Labor Department reported that US jobless claims unexpectedly rose last week and concern spread that growing sovereign debt may derail the recovery. The euro plunged to its lowest level since May 2009 as the dollar soared well above its longer term 200 day moving average line. Lackluster bond auctions in Portugal and Spain triggered the sell off and led many to question the underlying health of the European Union. In other news, the European Central Bank (ECB) held rates steady at a record low of 1%. ECB president Jean-Claude Trichet said he is “confident” that Greece is moving in the right direction as it tries to curb its ballooning deficit but did not address the broader concerns.

Earnings News Still A Disappointment:

So far, over half of the companies in the S&P 500 have released their Q4 results and the vast majority topped analysts estimates. Barring some unforeseen event, the S&P 500 is on track to snap a record nine quarter earnings slump as profits are expected to surge over +70% in the last three months of 2009. However, the market has sold off sharply since earnings season began which suggests large institutions are not happy with the results. 

Market Action: Day Count Reset; Market In A Correction:

Looking at the market, Thursday’s ominous action took out Monday’s lows and effectively ended the brief rally attempt which suggests a steeper correction may unfold and resets the day count for a proper follow-through day to emerge. 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 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. Until then, patience is paramount.

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