Stocks Rally On Disconcerting Economic Data


Thursday, January, 14, 2010
Market Commentary:

Stocks edged higher after weaker than expected economic data was released. Volume was reported slightly higher than the prior session’s totals on the NYSE and about even on the Nasdaq exchange, which suggested large institutions were buying stocks. Advancers led decliners by nearly a 11-to-8 ratio on the NYSE and by a 16-to-11 ratio on the Nasdaq exchange. There were 28 high-ranked companies from the Leaders List that made a new 52-week high and appeared on the BreakOuts Page, higher than the total of 20 issues that appeared on the prior session. New 52-week highs still solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

ECB, Jobless Claims & Retail Sales:

Most of Thursday’s important headlines occurred before the open. The European Central Bank (ECB) held rates steady and said they will wait for further economic strength before withdrawing emergency stimulus measures. Domestically, two important economic reports were released at 8:30 AM EST: weekly jobless claims and last month’s retail sales data. The Labor Department said that first-time unemployment (a.ka. jobless) claims rose more than forecast to 444,000 last week. The 11,000 increase was offset by another decline in the four-week average, down 9,000 to 440,750. It is important to note that the four-week average has declined for 19 consecutive weeks which clearly indicates a sharp improvement in the labor market. Elsewhere, retail sales unexpectedly fell -0.3% in December after a +1.8% increase in November. December’s reading fell short of the Street’s estimate for a +0.4% increase which caught many analysts by surprise.

Earnings Season:

Several companies reported their fourth quarter results but the vast majority are expected to report over the next few weeks. Next week alone, sixty-six companies in the S&P 500 are slated to report their fourth quarter results which will give investors a better understanding of how companies fared last quarter. Analysts believe that the average company in the S&P 500 increased its earnings by +62% during the fourth quarter. If that occurs, it will be the first quarterly increase since 2007 and snap the longest consecutive losing streak in modern history!

Market Action: Uptrend Remains Intact

For the most part, the major averages and leading stocks are acting well as investors digest the slew of economic and earnings data being released each day. Until a clear picture can be formed as to how companies fared last quarter then expect more of this sideways to slightly higher action to continue. It is important to note that the current 45-week rally remains intact as long as the major averages continue trading above their respective 50-day moving average (DMA) lines. Until those levels are breached, the bulls deserve the benefit of the doubt.

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