Stocks Rally For 3rd Straight Week

Friday, September 17, 2010
Stock Market Commentary:

Stocks enjoyed their third weekly gain and closed near their summer highs as investors digested a slew of economic data. Volume was reported higher on the NYSE and on the Nasdaq exchange compared to Thursday’s levels due to options expirations. Advancers led decliners by about a 3-to-2 ratio on the NYSE and by about a 4-to-3 ratio on the Nasdaq exchange. New 52-week highs easily outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange. There were 59 high-ranked companies from the CANSLIM.net Leaders List made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, higher than the 48 issues that appeared on the prior session.

Monday & Tuesday’s Action; Stocks Rally On New Bank Rules (Basel III):

On Monday, stocks surged around the world after bank regulators met in Basel Switzerland over the weekend and passed a new set of capital rules for banks. The new agreement now known as “Basel III” set new capital requirements for banks around the world. The new standards are viewed as bullish for the ailing financial industry as they help prevent excessive leverage which threatened the global financial system in 2008. On Tuesday, stocks ended mixed after August’s retail sales topped estimates and gold surged to a fresh all-time high. Stocks in Europe were under pressure before Tuesday’s open after a report showed economic growth in the Euro zone was slowing. In the US, retail sales topped estimates and rose by the largest pace in five months. The Commerce Department said total retail sales swelled by +0.4% following a revised +0.3% rise in July. This was the second consecutive monthly gain and bodes well for the economic recovery. 

Wednesday- Friday’s Action; Stocks Drift Higher And Close Near Resistance (Summer Highs):

Stocks rallied on Wednesday as the US dollar fell for a fifth consecutive day against the euro and investors looked past a weaker than expected economic report from the NY Fed. Stocks opened lower but closed higher after the New York-area manufacturing and other industrial data slowed and missed forecasts. The The Federal Reserve Bank of New York’s general economic index slid to -4.1 in September which was the lowest reading since July 2009 and lower than August’s reading of +7.1. The reading was also lower than the Street’s estimate for a rise to 8 which is above the boom/bust level of zero. Overseas, the Bank of Japan (BOJ) intervened in the currency market to curb the Yen’s recent move. The news helped send the US dollar higher for the fifth consecutive day which also helped lift dollar denominated assets; mainly stocks and commodities.  

Stocks ended mixed on Thursday after the latest round of economic data suggests the economic recovery may be slowing. U.K. retail sales fell and FedEx Corp. (FDX -0.53%), the second-largest package-shipping company, lowered their profit forecasts which fell short of analyst estimates and bodes poorly for the economic recovery. In other news, the producer price index (PPI) rose +0.4%, topped estimates, and was the largest increase in five months. The reading was twice as large as July’s total. Core prices, which exclude food and energy rose +0.1%. Elsewhere, the Labor Department said, weekly jobless claims fell by -3,000 to +450,000 last week which was lower than the Street’s forecast for +459,000. Finally, the Federal Reserve Bank of Philadelphia released its general economic index which rose to negative -0.7 this month. It was much higher than August’s reading of -7.7. In a separate report, the government said that the country’s poverty rate vaulted to +14.3% in 2009 which was the highest level since 1994, and the 43.6 million Americans in need is the largest reading in 51 years of record-keeping! This translates to approximately 1 in 7 Americans are living in poverty.The fact that more people, not less, have fallen into poverty is another negative data point for the struggling recovery. Stocks ended higher on Friday after consumer prices rose and US consumer sentiment unexpectedly fell to a one year low.

Market Action; Confirmed Rally:

Overall, the action since this rally was confirmed on the September 1, 2010 follow-through day (FTD) remains healthy. Looking forward, the window is now open for disciplined investors to begin carefully buying high-ranked stocks again. It was encouraging to see a flurry of high-ranked leaders trigger fresh technical buy signals and break out of sound bases in recent weeks. All the major averages rallied and managed to stay above their respective 200-day moving average (DMA) lines this week, which is another encouraging sign. The next important resistance level the major averages are facing is their respective summer highs.

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