Earnings Season Begins; Stocks End Mixed


Monday January 11, 2010
Market Commentary:

The major averages closed mixed after China reported record imports and earnings season officially began. Volume, an important indicator of institutional sponsorship, was reported slightly lower than Friday’s totals on the NYSE and was about even to slightly higher on the Nasdaq exchange which indicated large institutions were not aggressively buying or selling stocks. Advancers led decliners by a 23-to-15 ratio on the NYSE and were about even on the Nasdaq exchange. There were 55 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the total of 30 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange, and new lows on the Nasdaq were again near the single digits which is a healthy sign.

China’s Economy Is Strong!

Before Monday’s opening bell, China said both imports and exports rose compared to last year’s levels. Exports rose +17.7% from the same period last year which was the first increase in 14 months and imports surged +55.9% to a record high! The fact that exports rose, signals that the global economy continues to recover. However, the real news is that Chinese imports surged to a fresh all-time high which supports the notion that China is emerging as a formidable economic player in the 21st Century! It is important to note that there are over 1.3 billion people in China which means that if only 30% of their population gets “wealthier” over the next few years that roughly equals the entire population of the United States! As we can see, the robust growth in China (and Asia as a whole) can, and does, have a tremendous impact on the global economy.

Earnings Season Starts!

After Monday’s closing bell, Alcoa Inc. (AA +2.53%) officially kicked off earnings season when the company reported fourth-quarter profit excluding some items of 1 cent a share. This missed the Street’s estimate of 6 cents but it was encouraging to see that sales topped estimates. Traditionally, Alcoa is the first company in the Dow Jones Industrial Average to report their quarterly results which officially kicks off earnings season. Over the next few weeks, investors will be closely watching earnings for a better gauge of how companies fared in the final quarter of the decade.

Market Action: Uptrend Extended

After three strong weeks, the market appears to be showing signs that a near term pullback might be in the cards. A slew of stocks negatively reversed (opened higher and closed lower) on Monday which suggests a near term change in trend may unfold. However, for the most part, the major averages and leading stocks are still acting strong which means they deserve the bullish benefit of the doubt until support, in this case their respective 50 DMA lines, is violated. Keep in mind, that the current rally began its 45th week (since the March 12, 2009 follow-through day) and still looks strong. In addition, most bull markets last for approximately 36 months, so the fact that we are beginning our 10th month suggests we have more room to go.

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