MORNING MARKET COMMENTARY   - Friday, March 12, 2010
Volume Cools As Indices Edge Higher
Adam Sarhan, Contributing Writer, www.CANSLIM.net

The major averages edged higher after China said inflation jumped last month and mixed economic data was released. Volume totals were reported lower than the prior session on both major exchanges. Advancers led decliners by a 3-to-2 ratio on the NYSE and by a a 5-to-4 margin on the Nasdaq exchange. There were 35 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, down from the 50 issues that appeared on the prior session. New 52-week highs again overwhelmingly trumped new lows on both exchanges.

Overnight, China said inflation rose +2.7% in February, up from +1.5% in January. For the past few months, China has taken several steps to curb inflation and its robust economy. Their actions sent stocks lower as many people were concerned about what the ramifications would be for the ongoing economic recovery. Therefore, the higher reading on inflation could cause China to raise interest rates which could, in turn, hinder the economic recovery. 

In the US, two important economic reports were released: weekly jobless claims and the latest trade data. The Labor Department said weekly jobless claims fell by 6,000 to 462,000 which was a positive sign. Elsewhere, the Commerce Department said the trade deficit contracted in January due to a large drop in imported oil and cars. The report showed that US exports slid -0.3% which was concerning because the drop in overseas sales could slow the recovery.

Looking at the market, since the March 1, follow-through-day (FTD) the market and a batch of leading stocks steadily rallied. The fact that we have not seen any serious distribution days since the FTD bodes well for this nascent rally. It is also a welcome sign to see the market continue to improve as investors digest the latest round of stronger than expected economic and earnings data. Remember that now that a new rally has been confirmed, the window is open to start buying high quality breakouts. Trade accordingly.

PICTURED: The benchmark S&P 500 Index closed at the session high just $0.21 below its recovery high.

The Healthcare Index ($HMO +1.56%) and Gold & Silver Index ($XAU +0.85%) were among Thursday's best performing group indexes.  The Networking Index ($NWX +1.09%) posted its 10th consecutive gain while leading the tech sector higher. Meanwhile the rest of the tech sector showed less decisive action as the Semiconductor Index ($SOX -0.25%) lagged and the Biotechnology Index ($BTK +0.04%) and Internet Index ($IIX +0.24%) inched higher.  A modest gain from the Retail Index ($RLX +0.79%) provided a positive influence for the major averages.  Energy-related shares were mixed as the Oil Services Index ($OSX -0.11%) and Integrated Oil Index ($XOI +0.28%) ended the session with little change. The Broker/Dealer Index ($XBD +0.19%) is still a point below its January 2010 highs and -5.74% off its October 2009 recovery peak. However, the Bank Index ($BKX +1.72%) has been charging to new recovery highs, as shown below.

Charts courtesy www.stockcharts.com

PICTURED: The Bank Index ($BKX +1.72%) posted a 6th consecutive gain while rallying to new recovery highs. The leadership from financial stocks (along with many other growth areas) bodes especially well for the overall market outlook.

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