Healthy Economic Data Helps Stocks


Wednesday, March 3, 2010
Market Commentary:

The major averages ended mixed after the latest economic data showed improvement in the US job market and service industries. Volume, a critical gauge of institutional demand, was reported lower than the prior session on the Nasdaq exchange and on the NYSE. Advancers led decliners by a more than a 11-to-8 ratio on the NYSE and by a narrow margin on the Nasdaq exchange. New 52-week highs overwhelmingly trumped new lows on both exchanges which was another welcome sign while there were 46 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, down from the 76 issues that appeared on the prior session.

Healthy Economic Data Lifts Stocks:

Before Wednesday’s opening bell, ADP Employer Services said US employers only cut 20,000 jobs last month. This was the lowest reading in two years and bodes well for Friday’s official payrolls report. Elsewhere, the Institute for Supply Management (ISM) said its service index enjoyed the fastest growth rate since October 2007. The service index currently makes up over two thirds of the overall economy and a stronger reading is another healthy sign for the economy. Around 2pm EST, the Federal Reserve’s Beige Book was released which showed the economy continued to expand as 9 out of the 12 districts showed improvement. In Europe, Greece announced plans to cut its budget by an additional 4.8 billion euros ($6.6 billion) after European Union leaders called for deeper reductions before considering aid.

Market Action- Confirmed Rally:

Looking at the market, the latest rally attempt was confirmed when a “cautious follow-through day” was produced by the Nasdaq Composite on Monday, March 1. Since then, the major averages have gone virtually nowhere as investors await Friday’s jobs report. Weighing into the decision to label the day a follow-through-day (FTD) was the strong action in leading stocks along with a great expansion noted in the new highs list.  That action suggests that there is a healthy crop of strong stocks capable of fueling a substantial rally higher for the major averages.  We will be looking out for any near-term distribution days (high volume declines) which would hurt the chances for this nascent rally. Until then, the bulls deserve the bullish benefit of the doubt.

It is a welcome sign to see the market continue to improve as investors digest the latest round of stronger than expected economic and earnings data. Remember that now that a new rally has been confirmed, the window is open to start buying high quality breakouts. Trade accordingly.

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