Stocks ended the day, week, and first month of the new year lower as investors digested the latest round of tepid economic and earnings data. Volume totals on Friday were higher compared to the prior session on the Nasdaq exchange and on the NYSE. Decliners trumped advancers by over a 2-to-1 ratio on the NYSE and by near a 2-to-1 ratio on the Nasdaq exchange. There were 9 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, matching the 9 issues that appeared on the prior session. New 52-week highs still outnumbered new 52-week lows on the NYSE and on the Nasdaq exchange.

On Friday, January 22, US stocks ended their 46 week rally and entered a correction when all the major averages plunged below their respective 50-day moving average (DMA) lines. Since the March 2009 low, none of the major averages fell more than -10% from their post recovery highs which reiterates how strong this market actually is. Now that the market is in a correction again and the Nasdaq Composite Index is down approximately -8% below its recent high it will be very interesting to see if the bulls show up and quell the bearish pressure, or if the selling intensifies. It is important to note that even other developed markets overseas have performed rather well over the past 10 months. However, the Hang Seng Index, Hong Kong's stock market, fell -10% from its recent high which could drag the rest of the world markets lower.

The latest round of corporate earnings continues to top analysts' estimates but fails to impress Wall Street. In the last full week of January more than 130 companies in the benchmark S&P 500 reported their Q4 results, but stocks sold off. Barring some unforeseen event, earnings will have expanded nearly +70% and snapped a record nine-quarter earnings slump. Longstanding readers of this column know that in addition to analyzing the earnings numbers we pay equal, if not more, attention to how the market reacts to the numbers. So far, the reaction has been lackluster at best.

The latest round of economic data was also a disappointment. On Monday, a weaker than expected existing home sales report was released. The data showed that sales plunged in December even though home prices held steady during the month. Existing home sales skidded a whopping -16.7% for the largest monthly decline in over 40 years! Meanwhile, the annual rate of 5.45 million units fell short of the Street's estimate for 5.90 million.

Two important economic reports were released on Tuesday: the latest read on consumer confidence and the S&P Case/Shiller home price index. The Conference Board’s confidence index beat estimates and rose to55.9 largely due to a stronger labor market. This helped offset concerns that China's efforts to cool their booming economy will adversely affect the global economy and a disappointing report from the ailing housing market. The S&P/Case-Shiller home price index rose for a sixth straight month in 20 major US cities. The index rose +0.2% on a seasonally adjusted basis, but was down -5.3% from November 2008.

Stocks positively reversed on Wednesday after the Federal Reserve held rates steady and raised their outlook for 2010. In the after meeting commentary, the Fed said it believes "economic activity has continued to strengthen" since its last meeting in December. However, the Fed did not repeat its view that the housing market continues to improve. News on the economic front was less than stellar specifically in the ailing housing market. The Commerce Department said new-home sales plunged by -7.6% to an annual pace of 342,000 which is the lowest reading since March 2009! The report showed that for all of 2009, sales skidded -23% to 374,000 which was the lowest reading since records began in 1963. The negative housing data followed a string of weaker than expected reports released earlier this week.

Stocks reacted poorly to President Barack Obama’s first State of the Union address largely due to his plan to increase taxes on the upper class and his plan to end proprietary trading and hedge-fund investments at large banks. Some highlights from his speech were: “the worst of the storm has passed", we still face a "deficit of trust", while claiming that he is "not interested in punishing banks." For the past ten days, investors were concerned that Congress would not reconfirm Federal Reserve Chairman Ben S. Bernanke for another term. However, those concerns were allayed when Bernanke received enough votes for a second term.  The economic data of the day was less than stellar. Durable goods missed estimates and experienced its largest decline in history in 2009! Elsewhere, investors were disconcerted to see that jobless claims fell -8,000 last week to 470,000 (prior week revised -4,000 lower to 478,000). It was somewhat encouraging to see the smoother four week average rise +9,500 to 456,250 for a second straight week but the overall report suggests that the jobs market is still weak.

Stocks ended lower on Friday even after the government said Q4 GDP rose +5.7%. The major averages all closed near their session lows while slipping further below their respective 50-day moving average (DMA) lines, which is not healthy action. Until the indices rally back above their short-term averages the technical damage remaining on the charts is a serious concern that prompts great caution. So far, the market's reaction has been tepid at best to the latest round of economic and earnings data. Remember that the recent series of distribution days coupled with the deleterious action in the major averages suggests large institutions are aggressively selling stocks.  Disciplined investors will now wait for a new follow-through day to be produced before resuming any buying efforts. Until then, patience is key.

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PICTURED: The Nasdaq Composite Index has fallen -7.7% from its January 11, 2010 high of 2,326.

Longtime followers of this commentary know the importance that has continually been placed on following the action of stocks in the financial group, because the group is a reliable leading indicator.  Rarely do the major averages get clobbered when financial shares are showing healthy action and strength. Right now, however, the two main financial indexes we routinely track are showing us mixed signals.

Charts courtesy www.stockcharts.com

PICTURED 1: The Broker/Dealer Index ($XBD -2.19%) is currently struggling near prior chart lows after recently slumping below its 50-day moving average (DMA) line. A violation of recent chart lows could easily lead to more weakness and a test of its longer-term 200 DMA line appears somewhat likely in the near term.  Since zigzagging above the 200 DMA line in May 2009 it has not revisited that important long-term average.

Charts courtesy www.stockcharts.com

PICTURED 2: The Bank Index ($BKX -0.64%) is in much healthier shape, currently hovering above its 50 DMA line and in fairly close range of its recovery highs.

AsiaInfo Holdings, Inc. (ASIA -$0.08 or -0.33% to $23.90) ended today's session with a small loss on heavy volume after it reported solid results again for the period ended December 31, 2009. Worrisome losses on higher volume have followed its half-hearted stand of 2 small gains on light volume which had halted a streak of 6 consecutive losses on higher volume. It was noted on 1/20/10 - "violating its 50-day moving average (DMA) line and breaching recent chart lows, raising concerns and triggering technical sell signals."  Losses on heavy volume are signs of distributional pressure (institutional selling) that have caused greater technical damage since its last appearance in this FSU section on 1/12/10 under the headline "Recent Distributional Action Prompts Caution."

Prior chart lows and some earlier chart highs help to define an area of likely near-term support in the $22-23 area, but gains back above its 50 DMA line are needed for its outlook to improve. ASIA was featured 10/14/09 in the mid-day report (read here) as it gapped up for a new 52-week high with 5 times average volume, triggering a technical buy signal by blasting above its pivot point. It traded up as much as +68.13% since first featured in the August 2009 CANSLIM.net News (read here).

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.