Stocks Edge Higher On Healthy M&A Outlook


Wednesday, August 8, 2010
Stock Market Commentary:

The major averages ended with modest gains as investors looked past lackluster earnings and retail sales. Volume totals on were reported lower on both major exchanges versus the prior session, which was a sign that institutional investors were not aggressively buying shares. Advancers led decliners by over an 11-to-8 ratio on the NYSE and were about even on the Nasdaq exchange. New 52-week highs outnumbered new 52-week lows on the NYSE but trailed new lows on the Nasdaq exchange. There were 26 high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, one more than the 25 issues that appeared on the prior session.

Stocks Rally Despite Weak Retail Sales and Earnings Data:

The major averages opened lower after retail sales and the latest round of corporate earnings failed to impress analysts’ lofty expectations. Deere & Company (DE -1.86%) and Target Corporation (TGT +2.51%) ended lower which put initial pressure on equities. However, stocks rallied after speculation spread that the M&A market will heat up which is a net positive for equities and the economy. In other news, General Motors filed for its initial public offering (IPO) under the ticker symbol: GM.

Market Action- Rally Under Pressure:

It is disconcerting to see the action in several leading stocks remain questionable at best evidenced by the dearth of high ranked leaders breaking out of sound bases. In addition, The technical action in the major averages is not ideal. Currently, resistance for the Dow Jones Industrial Average and the benchmark S&P 500 index is their respective 200 DMA lines, while the Nasdaq composite faces resistance at its 50 DMA line. Wednesday’s action does not change our cautious outlook. Put simply, we can expect this sideways/choppy action to continue until the market breaks out above resistance or below support (recent chart lows). The first scenario will have bullish ramifications while the second will be clearly bearish. Trade accordingly.

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