Where’s The Volume?

Wednesday, December 1, 2010
Stock Market Commentary:

The Nasdaq composite and the small-cap Russell 2000 index both soared but failed to produce a proper follow-through day (FTD) because volume was lighter than the prior session. Therefore the market is still in a correction until a new proper FTD emerges.

Euro Woes Ease, Chinese Mfg Jumps, & US Economic Data Is Strong:

Overnight, Jean Claude Trichet, head of the European Central Bank (ECB), said the central bank was ready to step in and buy distressed assets to help curb EU contagion woes. This helped ease concern that the ominous debt woes will spread and that the euro will breakup. The euro rallied on the news which sent stock markets around the world higher. In other news, China said that mfg jumped to a 7-month high which bodes well for the global economic recovery. Before Wednesday’s open, ADP, the country’s large private payrolls company, said private jobs vaulted +93,000 last month which easily topped estimates and September’s reading was revised higher. Elsewhere, the US ISM mfg index rose for the 16th consecutive month and was little changed at 56.6.

Market Action- Correction Enters Week 3

It is encouraging to see the bulls show up this week and defend the 50 DMA lines for the major averages. Wednesday marked Day 1 of a new rally attempt for the Dow Jones Industrial Average and the benchmark S&P 500 which means the earliest a possible FTD could emerge for those indices is Monday. Meanwhile, the tech-heavy Nasdaq composite and small-cap Russell 2000 indexes marked Day 10 of their respective rally attempts which means the window remains open for either of those two indices to score a proper FTD. Trade accordingly.

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Investors in China were treading cautiously as the latest manufacturing data indicated the economy is growing solidly, heightening concerns about further tightening measures from Beijing to cool rising inflation.

China’s Purchasing Managers Index rose to 55.2 in November from 54.7 in October, according to data released by the China Federation of Logistics and Purchasing, marking the 21st consecutive expansion in manufacturing activity.

The strong result was reinforced by the HSBC China PMI, a gauge of nationwide manufacturing activity, which rose to 55.3 in November from 54.8 in October.

“This provides further evidence that price pressures are uncomfortably strong and will reinforce the case for further—and more urgent—policy normalization to get inflation under control,” Royal Bank of Canada economist Brian Jackson wrote in a note.

Beijing has delivered a series of tightening measures as consumer price inflation hit a two-year high of 4.4% in October. The central bank raised interest rates for the first time in almost three years in October and increased the reserve requirement ratio for banks twice in November