Tuesday, January 25, 2011
Stock Market Commentary:
The major averages opened lower but closed higher after the latest round of economic and earnings data was released. The current 22-week rally remains under pressure after the major averages negatively reversed from a new recovery high and closed lower on Wednesday January 19, 2011. This ominous action, especially after a big move and from a new high, suggests a subtle change in trend may be on the horizon. We are shifting our stance from capital appreciation mode; to capital preservation (i.e. we are locking in gains and tightening stops to protect from further downside deterioration).
Earnings & Economic Data:
The housing sector continues to struggle according to the latest Case-Shiller home price index. The closely watched index fell -0.08% in November which suggests home prices are continuing to fall as supply remains elevated and demand suppressed. Elsewhere, consumer confidence rose in January led by a big improvement in the ailing jobs market. The Conference Board’s index of consumer confidence rose more than 7 points in January to 60.6. President Obama will give his State of the Union address Tuesday evening and the Federal Reserve will conclude its first meeting of 2011 on Wednesday afternoon. In addition, there are a slew of earnings that will be released this week. Needless to say, it will be an interesting week. So far, it is encouraging to see the major averages edge higher.
Market Action- Market In Confirmed Rally; Week 22
It was encouraging to see the bulls show up in November and defend the major averages’ respective 50 DMA lines. The market remains in a confirmed rally until those levels are breached. The tech-heavy Nasdaq composite and small-cap Russell 2000 indexes continue to lead evidenced by their shallow correction and strong recovery. However, it is important to note that stocks are a bit extended here and a pullback of some sort (back to the 50 DMA lines) would do wonders to restore the health of this bull market. If you are looking for specific high ranked ideas, please contact us for more information.