Rally Attempt Ends As Stocks Negatively Reverse

Tuesday, January 26, 2010
Market Commentary:

The major averages negatively reversed, took out Monday’s lows, on heavier volume than the prior session. The ominous action effectively ended the current rally attempt and suggested that large institutions are aggressively selling stocks. Decliners led advancers by a 12-to-7 ratio on the NYSE and by an 18-to-9 ratio on the Nasdaq exchange. There were only 6 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the 7 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

Earnings Data: AAPL, VMW, VZ, etc…

Shares of Apple Inc. (AAPL +1.41%) rose after the company said earnings surged +50% on record sales of Macintosh computers and iPhones. The company’s huge numbers were due to an accounting change from the way iPhones are calculated. On Wednesday, the tech giant is slated to release its newest and much anticipated product- a tablet computer. Elsewhere, scores of other companies are slated to release their results this week. So far, approximately three-quarters of the companies that have reported their Q4 results have topped estimates for per-share earnings but the markets tepid reaction remains a concern.

Economic Data:

On the economic front, two important reports were released on Tuesday: the latest read on consumer confidence and the S&P Case/Shiller home price index. The Conference Board’s confidence index beat estimates and rose to 55.9 largely due to a stronger labor market. This helped offset concerns that China’s efforts to cool their booming economy will adversely affect the global economy and a disappointing report fromt the ailing housing market. The S&P/Case-Shiller home price index rose for a sixth straight month in 20 major US cities. The index rose +0.2% on a seasonally adjusted basis, but was down -5.3% from November 2008.

Market Action: Rally Attempt Over; Back in A Correction

Looking at the market, Tuesday’s ominous action effectively ended the current rally attempt and suggests a steeper correction may unfold. It is also important to see how the major averages react to their respective 50 DMA lines. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks. Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is paramount.