Stocks End Volatile Week Higher


Friday, March 04, 2011
Stock Market Commentary:

Stocks found support near their respective 50 DMA lines for the second straight week and rallied as investors digested a slew of economic data. The Labor Department said U.S. employers added 192,000 jobs last month which matched estimates. The current crisis in the Middle East remains in flux which is putting upward pressure on oil and gold and some modest pressure on equities. The benchmark S&P 500 is up nearly 100% from its March 2009 low, and still about -16% off its all time high from October 2007. On average, market internals remain healthy as the major averages bounced after finding support near their respective 50 DMA lines in late February.

Monday- Wednesday’s Action: Stocks Find Support 50 DMA Line

Stocks rallied on Monday after consumer spending in the U.S. rose but fell short of estimates last month due to higher food and energy prices. The Commerce Department said purchases rose +0.2% which was the smallest gain since June and half the median forecast. The report also showed that personal income topped estimates which was largely due to a stronger economy and the recent tax-cut extension. Inflation remained at bay and below the Federal Reserve’s 2% target. Elsewhere, a separate report showed U.S. pending home sales fall -2.8% in January to 88.9. The pending home sales index fell -1.5%compared to the same level last year.

On Tuesday, stocks negatively reversed (opened higher but closed lower) and tanked after news spread that a former Goldman Sachs (GS) director was involved in an insider trading suit. The ISM Manufacturing index in the U.S. rose in February to the fastest pace since May 2004 as factories added workers and increased production. The ISM’s factory index jumped to 61.4 from 60.8 in January. Manufacturing data in Europe jumped to the highest level in 10 years while manufacturing data in China fell to a six month low. Elsewhere, Fed Chairman Ben Bernanke and Treasury Secretary Timothy Geithner testified on Capital Hill where they largely reiterated their recent stance on monetary policy and an improving economic recovery.

Stocks were relatively quiet on Wednesday after the ADP said U.S. employers added more jobs than expected last month. Before Wednesday’s open, ADP, the country’s largest private payrolls firm, said U.S. employers added +217,000 new jobs in February which easily topped the revised +189,000 gain in January and February’s median estimate of +180,000. Stocks opened higher but sold off after a television station in France said a Libyan airplane fired two missiles at a square in the town of Brega. This sent WTI crude higher (well over the psychologically important $100/barrel mark) and sent gold surging to a fresh all-time high.

Thursday & Friday’s Action: A Lot Of Volatility; Minor Price Progress:

Stocks surged on Thursday as investors digested a slew of economic data. Before Thursday’s open, European Central Bank President Jean-Claude Trichet held rates steady at 1% and said the ECB may raise interest rates in April to curb inflation. This sent the euro higher and the USD lower.  A slew of large U.S. chain stores released stronger-than-expected monthly comps which bodes well for retail sales and the ongoing economic recovery. The Labor Department said weekly jobless claims slid by -20,000 which brought the weekly total down to 368,000. Finally, the ISM released its service index which easily topped estimates. On Friday, stocks fell after the Labor Department said U.S. employers added 192,000 jobs in February, the unemployment rate eased to 8.9%, and oil prices closed above $104/barrel as the situation in Libya deteriorated.

Market Action- Confirmed Rally; Week 27

It was encouraging to see the bulls show up and defend the major averages’ respective 50 DMA lines in November, January, and late February and early March. From our point of view, the market remains in rally-mode 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. If you are looking for specific high ranked ideas, please contact us for more information.

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