Stocks Rally On New Bank Rules


Monday, September 13, 2010
Stock Market Commentary:

Stocks rose sharply around the world after bank regulators met in Basel Switzerland over the weekend and passed a new set of capital rules for banks. Monday’s volume totals were reported higher on the NYSE and on the Nasdaq exchange compared to Friday’s levels which was an encouraging sign of institutional sponsorship. Advancers led decliners by over a 4-to-1 ratio on the NYSE and on the Nasdaq exchange. New 52-week highs easily outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange. There were 77 high-ranked companies from the Leaders List made a new 52-week high and appeared on the BreakOuts Page, nicely higher than the 30 issues that appeared on the prior session.

Basel III- New Bank Rules:

Over the weekend, bank regulators reached a new agreement in Basel, now known as “Basel III” which 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. The US Federal Reserve and a host of other major central banks and banking regulators said the new capital standards are a “significant step forward in reducing the incidence and severity of future financial crises.” Federal Reserve Chairman Ben Bernanke; Sheila Bair, head of the Federal Deposit Insurance Corp. (FDIC), and John G. Walsh, the acting head of the Office of the Comptroller of the Currency, participated in Sunday’s discussions in Switzerland. Their agencies issued the joint statement.

Market Action- Confirmed Rally:

Monday’s action was a healthy sign for the market rally that began on the September 1, 2010 follow-through day (FTD). 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 sessions. It was very healthy to see all the major averages jump above their respective 200 DMA lines on Monday as volume swelled. The next important level to watch for the major averages are their summer highs.  It is important to note that approximately 75% of FTDs lead to new sustained rallies, while 25% fail. In addition, every major rally in market history has begun with a FTD, but not every FTD leads to a new rally. Trade accordingly.

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