Economic Data Tops Estimates; Stocks Rally


Monday, August 2, 2010
Stock Market Commentary:

Stocks surged around the world after stronger-than-expected manufacturing surveys in Europe and the US helped allay concern that the global recovery is in jeopardy. Volume totals were mixed slightly higher on the NYSE and lower on the Nasdaq exchange which was not ideal. Normally, one would like to see volume expand as the market advances and contract when the market declines. Advancers trumped decliners on the NYSE by a 5-to-1 ratio and over a 2-to-1 ratio on the Nasdaq exchange. New 52-week highs easily outnumbered new 52-week lows on the NYSE and the Nasdaq exchange.  There were 56 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, much higher than the 19 issues that appeared on the prior session.

Economic Data Tops Estimates:

The Institute for Supply Management’s (ISM) manufacturing index slid to 55.5 in July from 56.2 a month earlier but topped estimates (54.5) and was above the critical boom/bust level of 50. Elsewhere, the Commerce Department said US construction spending unexpectedly grew +0.1% in June which also topped estimates (a decline of -0.5%). It was also encouraging to see the euro rally to a three month high against the greenback which helped lift a slew of dollar denominated assets (mainly, stocks and commodities).

Market Action- Confirmed Rally:

At this point, the Dow Jones Industrial Average, S&P 500, and the NYSE composite have all traded above resistance (their long term 200 DMA lines and recent chart highs) which leaves the tech-heavy Nasdaq composite and small-cap Russell 2000 slightly below their recent chart highs. However, the fact that all the major averages are still above their respective 2-month downward trendlines bodes well for this five week rally. In order for a new leg higher to begin, all the major averages must close and remain above their respective resistance levels. Remember that the window remains open for for high-ranked stocks to be accumulated when they trigger fresh technical buy signals. Trade accordingly.

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