Investors digested a slew of economic data and sent stocks higher during the first trading week of 2010. Volume, an important indicator of institutional sponsorship, was reported slightly lower than Thursday's totals which indicated large institutions were not aggressively buying or selling stocks. Advancers led decliners by a 3-to-2 ratio on the NYSE and on the Nasdaq exchange. There were 30 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, lower than the total of 32 issues that appeared on the prior session. New 52-week highs solidly outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange, and new lows on the Nasdaq were again in the single digits which is a healthy sign.

Monday was the first trading day of 2010 and stocks opened with a bang as the US dollar fell and healthy manufacturing data was released from the US and China. Before Monday's opening bell, China announced stronger than expected manufacturing data which sparked a broad based rally in overseas markets. Manufacturing in China grew by the strongest level since April 2004 and helped allay concerns that the global economic recovery was waning. It is important to note that China was one of the first countries to recover from the first global recession since World War II. The buying continued in the US when the Institute for Supply Management’s (ISM) factory gauge rose to 55.9. The report topped estimates and was the highest level in more than three years, which suggests the US manufacturing sector is definitely in recovery mode.

On Tuesday, stocks ended mixed as investors digested two important economic data points: factory orders and pending home sales. First, the good news, the Commerce Department said that factory orders in November rose +1.1% which more than doubled the Street's estimate for a +0.4% increase. Then, the National Association of Realtors said pending home sales plunged -16% in November, which was the lowest reading since June and fell short of the Street's lowest estimate.

Stocks ended mixed on Wednesday after a private report from ADP showed employers cut more jobs than expected last month and some Federal Reserve officials said they are willing to entertain the notion of more stimulus measures in 2010. Before Wednesday's opening bell, ADP Employer Services Inc., the country's largest private payrolls firm, said US employers slashed -84,000 jobs in December which fell short of the Street's estimate of -75,000. Elsewhere, the Institute for Supply Management (ISM) released a weaker than expected report on the service sector. Its non-manufacturing business index rose to 50.1, from 48.7 in the prior month. The reading topped the boom/bust level of 50 which shows growth but fell short of the 50.5 consensus. At 2:00PM EST, the Federal Open Market Committee (FOMC) released the minutes of its last meeting in 2009. The minutes for the December 15-16 FOMC meeting showed that several Fed officials are open to the notion of further stimulus measures, if needed, in 2010.

For a third consecutive session, stocks ended mixed on Thursday as investors digested mixed economic data: positive retail sales data and a modestly negative weekly jobless claims report. Finally, at 8:30AM EST on Friday, the Labor Department released December's much anticipated jobs report. US employers slashed -85,000 jobs last month which fell short of the Street's unchanged estimate. Meanwhile, the unemployment rate held steady at -10% which is near a 26-year high. However, November's reading was revised to show a gain of 4,000 which was the first time US employers added jobs in nearly two years. Since the recession began, the US has lost 7.2 million jobs which is the largest on a percentage basis of all jobs since World War II ended in 1944-45.

However, after all was said and done, stocks remain strong as investors digested the latest round of economic data. The benchmark S&P 500, Dow Jones Industrial Average, NYSE Composite, Nasdaq Composite, mid-cap S&P 400, small-cap Russell 2000 and small-cap S&P 600 indices all enjoyed fresh recovery closing highs in the first week of 2010. The current rally just ended its 44th week (since the March 12, 2009 follow-through day) and on all accounts still looks very strong. In addition, most bull markets last for approximately 36 months, so the fact that we are beginning our 10th month suggests we have more room to go. Until support is broken (50 DMA lines for the major averages) this rally deserves the bullish benefit of the doubt.

Charts courtesy www.stockcharts.com

PICTURED: The Gold & Silver Index ($XAU +1.41%) rallied back above 50-day moving average (DMA) after finding support at an upward trendline.

Credit Acceptance Corp (CACC -$0.00 or -0.00% to $43.98) is stubbornly holding its ground perched at all-time highs, extended from its prior base. Previous chart highs and its 50-day moving average line now coincide at $37, defining an important support level to watch. The Finance - Consumer/Commercial Loans firm has maintained a great track record of annual and quarterly sales revenues and earnings increases that satisfy the C and A criteria of the investment system.

Disciplined investors avoid chasing extended stocks that have risen more than +5% above their prior chart high or pivot point.  If they miss the ideal window of opportunity, patience may allow investors to accumulate shares on light volume pullbacks, or when another new base forms and a new buy signal is triggered. Investors can then "force feed" their winners by adding to already profitable positions whenever additional buys can be made within the proper parameters. According to the investment system rules, averaging down should never be done.  CACC was featured in yellow in the 9/29/09 mid-day report (read here) as a breakout gain was backed by more than 2 times average volume. Since first featured it has also risen above its 2006-2007 highs ($33-34) to new all-time highs, which is a very reassuring sign of strength. 

Color Codes Explained :
Y - Better candidates highlighted by our staff of experts.
G - Previously featured in past reports as yellow but may no longer be buyable under the guidelines.