Thursday, October 28, 2010
Stock Market Commentary:
Stocks and commodities opened higher as the USD snapped a two day winning streak but the bears quickly showed up and sent stocks lower as traders await Friday’s GDP report. Volume patterns remain healthy as the major averages are now in the 9th week of their ongoing rally. However, it is important to note that there have been an ominous number of distribution days that have emerged in the popular indexes in recent sessions which suggests caution. On average, market internals remain healthy evidenced by an upward sloping Advance/Decline line and the fact that new 52-week highs continue to easily outnumber new 52-week lows on both exchanges.
Jobless Claims Fall; Earnings Remain Strong:
Before Thursday’s open, futures jumped after jobless claims fell to a three month low. The Labor Department said initial jobless claims fell by -21,000 to 434,000 in the week ended Oct. 23. This was the lowest reading since July when fewer auto plants than normal closed for retooling. The report also showed that the total number of people receiving unemployment insurance fell to a two-year low, while those getting extended payments also contracted. The next week will be very busy on Wall Street. Tomorrow, the government will report the first reading on Q3 GDP. The mid-term elections are on Tuesday, the Fed will meet on Wednesday and announce the details of QE 2, and October’s non-farm payrolls report will be released next Friday. Needless, to see it will be a very busy week and we, as always, will be focusing on how the market reacts to the news, more than the news itself.
Market Action- Confirmed Rally, Week 9:
Heretofore, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) has been strong but the market action has been wide-and-loose which is not a healthy sign. The S&P 500 sliced below its two month upward trendline (shown above) which is not ideal. The next level of support for the major averages is their September highs, then their respective 200-day moving average (DMA) lines while the next level of resistance is their respective April highs. We have enjoyed large gains since the September 1st FTD and for the first time, the tape is getting sloppy. Trade accordingly.
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