Stocks End Mixed on Mixed Economic Data

Tuesday, January 5, 2010
Market Commentary:

The major averages closed mixed after spending most of the session in the red as investors digested the latest round of mixed economic data. Volume, an important indicator of institutional sponsorship, was reported higher than Monday’s totals which indicated large institutions were not aggressively dumping stocks. Advancers led decliners on the NYSE but trailed by a small margin on the Nasdaq exchange. There were 58 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 total of 63 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.

Strong Manufacturing Data Helps Stocks

There were two important economic data points that were released today: factory orders and pending home sales. First, the good news, the Commerce Department said that factory orders in November rose +1.1% which more than doubled the Street’s estimate for a +0.4% increase. The stronger than expected report reiterated healthy manufacturing data released on Monday from both the US and China. The report showed that demand for steel, computers, and chemicals all remained strong which bodes well for the ongoing economic recovery.

Tepid Housing Data Hurts Stocks

Elsewhere, the National Association of Realtors said pending home sales plunged -16% in November which was the lowest reading since June and fell short of the Street’s lowest estimate. Pending home sales are defined as the number of buyers who agreed to purchase previously owned homes. A pending sale is one in which a contract was signed, but not closed. It is important to note that the index is used as a leading indicator of existing home sales, not new home sales. The mixed economic data made it difficult for investors to ascertain the health of the economy. That said, many investors are still waiting for the December’s official jobs report which is slated to be released before Friday’s opening bell.

Market Action- Price & Volume Remains Healthy

Stocks remain strong as they managed to brush off the negative housing data and close near their intraday highs on Tuesday. The current rally is in the middle of it 44th week (since the March 2009 lows) and on all accounts looks strong. In addition, most bull markets last for approximately 36 months so the fact that we are beginning our 10th month suggests we have more room to go. The Dow Jones Industrial Average, small cap Russell 2000 Index, S&P 500 Index and Nasdaq Composite and NYSE Composite indices are all trading near their respective 2009 highs which also bodes well for this rally. Leadership is beginning to expand which is a welcomed sign and ideally it will continue to expand over the next few weeks as the major averages continue advancing.