Healthy Week On Wall St; Stocks Close Above Resistance!


Friday, July 23, 2010
Stock Market Commentary:

Stocks ended higher this week as investors digested a slew of earnings and economic data. Volume, an important indicator of institutional sponsorship, was reported slightly higher than Thursday’s totals on both exchanges while the major averages ended unanimously higher. Advancers trumped decliners by over a 3-to-1 ratio and new 52-week highs outnumbered new 52-week lows on both major exchanges. There were 39 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher from the 23 issues that appeared on the prior session.

Monday & Tuesday’s Action:

Stocks ended higher on Monday after the National Association of Home Builders/Wells Fargo confidence index slid to 14 in July which is the the lowest reading since April 2009 and down from last month’s reading of 16. Any reading below 50 means that respondents consider the current environment as poor. Over the next few weeks, it will be very interesting to see how companies fared last quarter and, equally important, to see how the market reacts to the numbers. Analysts believe that Q2 earnings for S&P 500 companies rose +34%. So far, the reaction has been positive.

Stocks rallied on Tuesday after several high profile companies released their Q2 results. Initially, stocks opened lower due to a general disappointment with their numbers but the bulls showed up in the second half of the session which was an encouraging sign. A slew of housing stocks rallied after building permits rose last month. However, housing starts, which measure new production, fell in June to their lowest level since October 2009 after the government tax incentive expired. 

Wednesday- Friday’s Action:

Stocks got hit on Wednesday after President Obama signed into law the Dodd-Frank Wall Street Reform and Consumer Protection Act while Federal Reserve Chairman Ben Bernanke testified on Capitol Hill and a slew of earnings were released. On Thursday, the major averages vaulted above their two month downward trendlines and their respective 50 DMA lines which was a very healthy sign. The large rally was sparked after healthy economic data was released from Europe. The strong economic data helped allay concerns that an economic slowdown may derail the global recovery. Stocks ended higher on Friday after the latest round of large cap earnings were released and the results of the European Stress Test were mild. 

Market Action- Confirmed Rally:

It was a very constructive week on Wall Street as all the major averages traded above their respective two month downward trendlines and their respective 50 DMA lines. It was also encouraging to see the Dow Jones Industrial Average & and the tech-heavy Nasdaq composite close above their longer term downward sloping 200 DMA lines. There is no point in fighting the tape and the bulls deserve the bullish benefit of the doubt until this “breakout” is negated. Trade accordingly.


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