First Week of 2011; Stocks & USD Rally, Commodities Fall


Friday, January 7, 2011
Stock Market Commentary:

It was interesting to see both stocks and the USD rally during the first week of 2011 while a slew of commodities fell. Heretofore, market internals remain healthy evidenced by broad leadership, favorable volume patterns, a rising advance/decline line, and a healthy number of new highs on both major exchanges.

Monday- Wednesday’s Action: ADP’s Jobs Report & ISM Service Index Easily Top Estimates:

Stocks roared on Monday after the ISM Manufacturing index rose in December and jumped to the fastest pace in 7-months. The ISM’s mfg index rose to 57 last month from 56.6 in November. Elsewhere, it was also encouraging to see inflation in China ease which helped allay pressure on China to curb their red-hot economy. It was also healthy to see a slew of high ranked leaders rally after shallow pullbacks towards support (i.e. important moving averages).

Stocks slid on Tuesday after a Pakistani Governor was assassinated by his bodyguard and US factory orders unexpectedly rose in November. Before Wednesday’s open, ADP, the country’s largest private payrolls company, said US employers added +297,000 new jobs in December which was three times stronger than the Street’s estimate. After the open, the Institute for Supply Management (ISM) released its service index which surged to the highest level since May 2006! The service sector currently accounts for over two-thirds of the economy.  The non-factory index, vaulted to +57.1, easily topping the median forecast and November’s reading of 55. This news is the latest in a series of stronger than expected economic data which bodes well for the global economic recovery.

Thursday & Friday’s Action: Stocks Consolidate Week’s Move

Before Thursday’s open, the Labor Department said weekly jobless claims rose by +18,000 to 409,000, matching estimates last week. However, the smoother 4-week average average slid to 410,750 which was the lowest level since July 2008. Many national retailers reported weaker-than-expected sales figures for December which put minor pressure on retailers. Stocks were little changed on Friday after the Labor Department said US employers added +103,000 new jobs last month, lower than the Street’s forecast, while the unemployment rate fell to +9.4%. However, it is important to note, the major averages are actually higher this week alongside the rising dollar which is a strong positive divergence. This can be attributed to a stronger-than-expected economic recovery in the US.

Market Action- Market In Confirmed Rally Week 19

It was encouraging to see the bulls show up in November and defend the major averages’ respective 50 DMA lines. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. Put simply, stocks are strong. Trade accordingly. If you are looking for specific high ranked ideas, please contact us for more information.

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