StockMarketNewsAlert.com

Monday, February 08, 2010

Major Averages Overcame Intra-day Losses To Close With Small Gains

Stocks got smacked for the fourth consecutive week as the dollar rallied and fears spread that the economic recovery may slow. Volume was heavier than the prior session on the NYSE and near the prior session total on the Nasdaq exchange. Decliners led advancers narrowly on the NYSE while advancers slightly outnumbered decliners on the Nasdaq exchange.

Stocks rallied on Monday continuing the recent string of a strong start to the week before the bears show up and send stocks lower by Friday. This week was no exception. Stocks rose on Monday after several strong manufacturing reports in the US, Europe and China were released.

The Institute for Supply Management said that US manufacturing enjoyed its largest gain since August 2004 which was a welcomed sign. On Tuesday, stocks and commodities rallied as the dollar fell after healthy news from the ailing housing front was released and the Australian central bank unexpectedly left interest rates steady.

Stocks ended mixed on Wednesday, after the ADP said US employers cut -22,000 jobs last month which matched forecasts and the ISM said its non manufacturing index (a.k.a service-index) rose to 50.5, which signaled growth but trailed estimates. Readings above 50 suggest growth while reading below 50 indicate contraction. Even though the number topped 50, it trailed estimates which led many to question the health of this recovery.

The three day rally attempt abruptly ended on Thursday when all of the major averages took out Monday's lows on heavy volume. Both stocks and commodities got smacked as the dollar rallied after concern spread that the global economic recovery may slow. Before Thursday's opening bell, the Labor Department reported that US jobless claims unexpectedly rose last week and concern spread that growing sovereign debt may derail the recovery.

The euro plunged to its lowest level since May 2009 as the dollar soared well above its longer term 200 day moving average line. Lackluster bond auctions in Portugal and Spain triggered the sell off and led many to question the underlying health of the European Union. In other news, the European Central Bank (ECB) held rates steady at a record low of 1%. ECB president Jean-Claude Trichet said he is "confident" that Greece is moving in the right direction as it tries to curb its ballooning deficit but did not address the broader concerns.

Stocks overcame intra-day losses and ended with small gains on Friday after the Labor Department said US employers cut -22,000 jobs in January and issued its annual benchmark update. The latest data shows that since the recession began in 2007, the country shed a whopping 8.4 million jobs which topped the prior estimate of just over 7 million.

On the earnings front, so far, over half of the companies in the S&P 500 have released their Q4 results and nearly 80% of those companies have topped estimates. Barring some unforeseen event, the S&P 500 will snap a record nine-quarter earnings slump as earnings are expected to have grown +76% in the last three months of 2009 as the global economy continues to rebound from its worst recession since WWII! However, the fact that the market and most leading stocks experienced sharp losses since earnings season began suggests large investors are clearly concerned.

Looking at the market, Thursday's ominous action took out Monday's lows and effectively ended the brief rally attempt, which suggested a steeper correction may unfold and reset the day count for a proper follow-through day to emerge. It is also important to see how the major averages react to their respective 50-day moving average (DMA) lines which were support and are now resistance. Until they all close above that important level the technical damage remaining on the charts is a concern. So far, the market's reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks.

The benchmark S&P 500 Index overcame intra-day weakness and closed with a gain which marks Day 1 of another new rally effort.

The Gold & Silver Index ($XAU +5.35%) was a standout gainer on Friday, reclaiming the ground it lost on the prior session. Financial shares were a positive influence on the major averages as the Broker/Dealer Index ($XBD +1.26%) and Bank Index ($BKX +1.33%) posted gains.

The tech sector's strength helped the tech-heavy Nasdaq Composite Index lead its peers as the Semiconductor Index ($SOX +2.39%) outpaced the Internet Index ($IIX +0.84%) and the Networking Index ($NWX +0.40%). While the Retail Index ($RLX +0.17%) edged higher, energy shares traded down and the Oil Services Index ($OSX -0.72%) and Integrated Oil Index ($XOI -0.32%) ended modestly lower.

The Healthcare Index ($HMO -0.50%) and Biotechnology Index ($BTK -0.66%) also closed with small losses.