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Sunday, December 27, 2009

Tech takes bull by the horns

Investors focused on the positive and drove stocks to new highs in a low-volume, holiday-shortened week. It could have gone the other way as economic reports were mixed. Investors cheered improvements in existing home sales and a drop in initial jobless claims and they shrugged off much worse than expected new home sales and the revision of Q3 GDP down to a paltry 2.2%.

Also released just before Christmas was the Durable Goods report for November. At a summary level, shipments, new orders and unfilled orders were all up while inventories declined. The numbers beat expectations and helped the market rise. From the point of view of the tech sector, shipments were down month-over-month but new orders were up nicely. Here is the chart for the tech sector as a whole:

Durable Goods - Tech Sector - Nov-2009

Investors tend to focus on the new orders numbers since shipments are ancient history. This chart shows new orders have hit the highest level in twelve months so it is clearly a welcome development. Even though new orders can be canceled or delayed, it is still encouraging to see the bottom holding.

So much for economic statistics, how are things doing from a technical analysis point of view?

The view from Alert HQ --

Charts of some of the statistics we track at Alert HQ are presented below:

Moving Average Analysis - SPY versus the market, 12-24-2009

This first chart presents our moving average analysis.The number of stocks above the 50-day moving average surged higher this week and crossed above the magenta line that represents the number of stocks whose 20-day moving average is above their 50-day moving average. Also note that the magenta line is trending upward in concert with the yellow line. This suggests a very bullish outlook.

The next chart provides our trending analysis. It looks at the number of stocks in strong up-trends or down-trends based on Aroon analysis.

Trend Analysis - SPY versus the market, 12-24-2009

Here we also see stocks finally moving in a decisively bullish direction. The number of stocks in strong up-trends has increased nicely while the number of stocks in down-trends has stayed at a relatively low level.

Conclusion --

In last week's weekly review I pointed out that tech would be in the spotlight with Jabil Circuit, Progress Software, Micron Technology, Red Hat, TIBCO and 3Com reporting earnings. Every one of them met or exceeded expectations. This followed the previous week when Research in Motion and Oracle also beat. So it appears tech stocks are indeed poised to turn in good results and, if this week is any indication, they will lead this market to further highs. Unfortunately, there are no significant tech earnings coming up this week so I don't know if we can keep the momentum going.

On the other hand, there are some economic reports of note coming up including the Case-Shiller 20-city home price index, the Conference Board Consumer Confidence Index, Chicago PMI (Purchasing Managers Index), crude oil inventories and the weekly initial jobless claims and continuing claims numbers.

With our Alert HQ statistics showing broad-based strength in the market and investors rotating into tech and other economically sensitive sectors, things are looking up. The zig-zag sideways action we have seen for the last month or two looks to be giving way to a trending market, one that is trending to the up-side. Thanks Santa!

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