Wednesday, December 23, 2009
The major averages closed higher as investors digested a flurry of mixed economic data. Volume, an important indicator of institutional sponsorship, was lighter than Tuesday’s levels, revealing a lack of appetite for accumulating shares from very large and influential institutional investors. Advancers led decliners by nearly a 3-to-1 ratio on the NYSE and by over a 2-to-1 ratio on the Nasdaq exchange. There were 63 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher from the total of 52 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.
At 7:00 AM EST, the Mortgage Bankers’ Association (MBA) said its purchase application index fell -11.6% while its refinance index fell -10.1%, both below consensus. On a more positive note, the report showed that long term mortgage rates remain extremely low with 30-year loans averaging +4.92%. At 10:00 AM EST, the Commerce Department said new home sales plunged -11% in November to a 355,000 annual rate which fell short of estimates. Furthermore, the report included downward revisions of 42,000 in the prior two months. New home sales measure the number of newly constructed homes with a committed sale during the prior month.
Elsewhere, personal income in November rose by +0.4%, following a rise of +0.3% in October. This was just below the Street’s estimate of a +0.5% gain. The wages and salaries component of the report rose +0.3% after a +0.1% increase in October. The report showed that inflation eased last month. The headline PCE price inflation component fell to +0.2% from +0.3% in October. Core PCE inflation was unchanged in November, down from a +0.2% increase in October.
Price & Volume Action:
Looking at the market, the Dow Jones Industrial Average and benchmark S&P 500 index both closed near their respective resistance levels as they quietly consolidate their recent gains in lighter pre-holiday volume. Meanwhile, the tech-heavy Nasdaq composite continues to lead its peers as it managed to hit another 2009 high on Wednesday.
Remember that the S&P 500 plunged -58% from its all time high in October 2007 of 1,576 to its March 2009 low of 666. Since then, the market has rebounded over +65% but still remains -29% below its all-time high of 1,576. In addition, the index has retraced nearly -50% (455 points) of its decline (910 points) which is a popular Fibonacci level used by many technical analysts. Normally, markets rebound approximately 50% before resuming their prior trend (which would be down in this case). Longstanding readers of this column know that we do not predict the future. Instead, we remain open to any possible scenario that may unfold and interpret what we see happening by remaining objective and carefully analyzing the tape (price and volume) each day.