Wednesday, November 24, 2010

Stocks Show Continued Resilience And Bounce

The market continues to show its resilience and bounce sharply from yesterday's selloff. Recently, each time the market has experienced a big selloff, it has bounced back quickly. This is a positive trait to a consolidation, whereby the market bends but does not break.

I have been out the last couple of days, but a cursory look at the charts of many leading stocks shows continued positive price action. I think this bodes well to a constructive outlook.

This morning, there were mixed economic reports, but the market seems to be focusing on the positives. November Consumer Sentiment came in better than expected at 71.6, which is up nicely from last month. And initial jobless claims fell to a 2-year low on a better than expected report. A weak durable goods number, and a weak new home sales report don't seem to be gaining too much traction in early trading.

Asian markets were mixed overnight. The euro is bouncing a bit this morning, but wider yield spreads in Europe show that concern about debt issues remain. The dollar is roughly flat, with oil and gold prices higher. Oil is up to $81.67, while gold has bounced back to $1376. Gold prices recently found solid support at their 50-day average.

Among the sector ETFs, industrials are leading (+1.33%), followed by materials (+1.15%). Utilities (+0.32%) are lagging, followed by consumer staples (+0.46%).

The 10-year yield is bouncing to 2.88%; while the volatility index (VIX) is down a sharp -8.6% back below the 20 level to 18.85.

Trading comment: I think the price action has been constructive. I haven't had a chance yet to see how investor sentiment has been shaping up, so I still need to do that roundup. I will try to post a sentiment update on Friday to update readers. But as I mentioned before, many leading stocks continue to break out to new highs, or hold just below their 52-week highs.

If you look at the chart below, you'll see the S&P 500 has held above its 50-day average, and has been oscillating between its 50-day support and overhead 20-day average. I think this consolidation will soon be broken to the upside, based on the action I am seeing in individual stocks.


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