Strong Week on Wall Street; New Rally Confirmed!


Friday, March 25, 2011
Stock Market Commentary:

It was a strong week on Wall Street as a slew of leading stocks triggered fresh technical buy signals and the benchmark S&P 500, Dow Jones Industrial Average, and small cap Russell 2000 index all closed above their respective 50 DMA lines. The 28-week rally, which began on the September 1, 2010 follow-through day (FTD), ended on Thursday March 10, 2011 when all the major U.S. averages plunged below their respective 50 DMA lines in heavy trade. However, the correction was short lived when a new rally was confirmed on Thursday March 24, 2011′s healthy action. The healthy action suggests the bulls are back in control.

Monday-Wednesday’s Action: Stocks Rise As Nuclear Threat Eases

Over the weekend, allied forces removed several of Qaddafi’s key military strong holds in Libya. This weakened the aging dictator and will hopefully lead to a peaceful resolution to the three week conflict, lead by the Libyan people. The nuclear threat eased markedly in Japan which helped allay woes that an all out nuclear meltdown will occur. These two events helped stocks rally across the globe. Meanwhile, in the U.S., existing home sales plunged while the median home price fell to the lowest level since April 2002. The National Association of Realtors said existing home sales tanked -9.6% to a 4.88 million annual rate which is less than the 5.13 million median forecast and bodes poorly for the ailing housing market. The report also showed that the median price fell -5.2% from the same period last year and a whopping 39% were sales of distressed properties. On Tuesday, stocks traded in a relatively quiet range as investors digested the market’s recent move. The Federal Housing Finance Agency (FHFA) said its Home Price Inde (HPI) fell -0.3% in January which is the latest in a series of weaker-than-expected data from the ailing housing market.

On Wednesday, U.S. stocks edged higher as investors looked past an ominous report from the ailing housing market. Stocks edged higher helping the Dow Jones Industrial Average and Copper both close above their respective 50 DMA lines for the first time in two weeks. In other news, the Egyptian stock market opened for the first time in nearly two months. Egyptian stocks, which enjoyed explosive gains for much of the last decade, plunged right at the open which triggered a series of circuit breakers which closed the exchange for half an hour. When the market reopened, it rallied slightly off the lows before closing down nearly -9%. Europe’s periphery countries remain in flux. The cost of insuring their debt jumped with credit-default swaps (CDS) on Portugal surging after the Prime Minister resigned and the Parliament rejected austerity plans.  Interestingly, the euro remains strong as it remains perched below multi month highs! In the U.S., the Commerce Department said new home sales plunged to record lows which bodes poorly for the ailing  housing market.

Thursday & Friday’s Action: Stocks Confirm New Rally!

Before Thursday’s open, two important economic reports were released: durable goods and jobless claims. Durable goods, which are items meant to last at least three years, unexpectedly fell -0.9% last month. Excluding transportation, new durable goods orders slid -0.6%, after a -3.0% decline in January. Meanwhile, the Labor Department said weekly jobless claims slid -5,000 last week to -382,000 which bodes well for the recovering jobs market. Before Friday’s open, the latest read on Q4 2010 GDP was released at 3.1% which was higher than the latest estimate of +2.8%. Shortly after the open, consumer confidence plunged in the U.S. which did little to curb the session’s strong gains.

Market Action-Confirmed Uptrend

From our point of view, the market is back in a confirmed uptrend after a modest (and healthy)-6% correction from its post-recovery highs. The fact that the Dow Jones Industrial Average, small-cap Russell 2000 index, and Copper all closed above their respective 50 DMA lines on Wednesday March, 23 was a very healthy sign and suggests higher prices will follow.  The very next day, the benchmark S&P 500 regained that important level and broke above its downward trendline (shown above). Couple that with the fact that other markets like Oil, Silver, and Gold are all at fresh post recovery highs suggests it is only a matter of time until equities follow. The final bullish sign for us was that a slew of high ranked stocks triggered fresh technical buy signals this week which suggests higher, not lower prices lie ahead! If you are looking for specific help navigating this market, please contact us for more information.

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