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Published Monday, Sep 06, 2010		Volume 41
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There were a TON of economic reports that hit the Street last week and the market finished much higher than it began. Leading the charge to the upside was the Russell 2000 as it gained 4.31% for the week, and 6.86% just during the first three days of September. There was wide participation in the advance as the S&P 500, NASDAQ and Dow Jones also rose 3.75%, 3.72% and 2.93%, respectively. There were plenty of reasons for the surge higher, but the spike in August consumer confidence on Tuesday helped to spur the action. The July reading had been 51.0 and consensus estimates were for the August number to come in slightly below that at 50.0. Instead, confidence rose nearly 5% to 53.5 and it couldn't have come at a better time. At that time, the S&P 500 was hovering close to the 1040 short-term price support level, so a poor number could have been disastrous technically. Rather, support held and then strong manufacturing data in the U.S. and abroad on Wednesday triggered an onslaught of buying to end the week. Manufacturing data in China helped global shares in mid-week and the U.S. added their own economic fuel to the fire when the ISM index on Wednesday jumped to 56.3 in August from 55.5 in July. While that rise might seem uninspiring at first glance, it was welcome news to a market that was expecting a 5% decline to 52.9. The market seemed to shrug off the slight miss in the ADP employment change report, instead wanting to wait for the more closely watched nonfarm payrolls report issued by the government. It turned out to be the right move as payrolls decreased less than expected -- 54,000 vs. the 120,000 consensus estimates. In a further twist, June and July job numbers were both revised higher. In the case of July, payroll losses were lowered by nearly 80,000. With so many in the camp expecting a double dip recession, the better-than-expected news on jobs and other economic reports helped to buoy stocks and the bulls were in complete control as the week came to a close. It certainly didn't hurt that few companies reported earnings as the market's attention seemed to divert to what "might" occur in the future as opposed to what companies are facing in the here and now. Technically, it was nice to see a solid recovery in many sectors and indices at very key levels on the charts. Some estimates suggest as high as 50% of the trading volume is as a result of technical trading. Thus, holding key support levels is critical to the bulls' hopes and many key support levels held early in the trading week, allowing for a huge rally by week's end. The Dow Jones US Financial Index, a very influential piece of the market puzzle, rallied near price support at 240, and then surged to finish the week at 260.94. The XLF (ETF that tracks the financial sector) rose 5.75% on the week and was the best performing sector. As we've indicated in the past, the strength and sustainability of any rally can be measured in part by the relative performance of financials. We'd give the bulls an A+ in this regard last week. All of the aggressive sectors outpaced all of the defensive sectors, another necessary component to a sustained advance. The lagging technology sector remains a concern, but consumer discretionary and industrials outperformed this past week and these are two groups that led the advance earlier in 2010. It was clearly a good sign to see relative strength in these two sectors. Technically, we still have 20 day EMAs below 50 day SMAs and 50 day SMAs below 200 day SMAs across all of our major indices. This is the poster child of a downtrending market. So while much of the above is biased to the upside, we have to keep things in perspective and realize that the overriding intermediate-term trend is lower, not higher. We recognized the short-term bullish implications last week and featured 5 of our 6 stock setups in our marketJOURNAL section on the long side. A few of those setups performed extremely well with VirnetX Holding Corp (VHC) up 21.2% for the week (at its intraweek high) leading the way. Two others, HealthSpring (HS) and International Rectifier (IRF), gained 9.0% and 9.3%, respectively. The upcoming week, discussed in great detail in our marketFORWARD section, features more shorting candidates than long candidates because of the significant resistance that is fast approaching.
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