The major averages rallied on Monday as the latest round of mergers and acquisitions were announced. As expected, volume, an important indicator of institutional sponsorship, was lower than Friday's levels due to quadruple witching. Advancers led decliners by over a 2-to-1 ratio on the NYSE and by nearly a 2-to-1 ratio on the Nasdaq exchange. There were 43 high-ranked companies from the CANSLIM.net Leaders List that made a new 52-week high and appeared on the CANSLIM.net BreakOuts Page, up from the total of 26 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.

It was encouraging to see the major averages rally even as the US dollar advanced. Since early December, the US dollar has steadily advanced but the major averages have managed to hold their own and move sideways to slighter higher during that period. However, other dollar denominated assets were not as fortunate: gold tumbled nearly -11% from its 2009 high and crude oil slid nearly -15% from its 2009 high. This led many investors to ponder whether US equities may begin decoupling from the greenback. If that were to occur, then both asset classes (stocks and the dollar) would move in the same direction which would be an important shift.  

In recent quarters, US companies are paying the largest premiums on record as M&A activity increases. Many analysts believe that this is a sign that executives are growing more bullish about earnings and the economy even after the biggest 8-month rally for the Standard & Poor's 500 Index in 73 years! Analysts believe that mergers may surge +35% in 2010 and +23% in 2011 as credit begins to flow again. The data, compiled by Sanford C. Bernstein, is based on M&A's that occurred since 1980. Their research incorporates growth in GDP, corporate earnings and commercial loan volume. That said, the S&P 500 Index's price to earnings (P/E) ratio is just over 22.2 times its companies’ profits over the past 12 months and is expected to fall to 11.6 when measured against analysts' 2011 forecast. Of course, the actual results could be different next year but all things being equal, suggests more M&A news is on the horizon.

It was very encouraging to see the Nasdaq Composite Index break out of its current trading range and hit a new 2009 high on Monday. It was also very encouraging to see the Philly Semiconductor Index (SOX) gap higher and hit a fresh 2009 high as well. Meanwhile,the Dow Jones Industrial Average and S&P 500 closed just below 10,500 and 1,120, their respective resistance levels. Apple Inc. (AAPL +1.43%) closed above its 6-week downward trendline and its 50-day moving average which are both healthy signs and bode well for this 42-week long rally.

PICTURED: The Nasdaq Composite Index gapped higher and hit a fresh 2009 high.

Charts courtesy www.stockcharts.com

PICTURED: The Healthcare Index ($HMO +3.00%) was a standout gainer as it rose to a new 2009 high.

Baidu.com, Inc. (BIDU -$7.02 or -1.72% to $407.38) suffered a 3rd consecutive loss today on light volume, leading to further deterioration below its 50-day moving average (DMA) line.  The weakness, and its lack of upward progress, is raising concerns and hurting its outlook. Its color code was changed to green as it slumped from near its pivot point. It would need to rally above its latest pivot point to trigger a new buy signal. Technically, it has built a sloppy base over 8 weeks. Since quietly rallying to new highs in November it has stalled. 

This Chinese provider of Internet search and content services could continue base-building for a longer period.  Patience is important because without convincing gains leading to a fresh breakout there is little assurance it is capable of sustaining a meaningful rally higher.  Even a powerful breakout might be risky to trade after its 4-fold ascent this year, its recent action could be "late-stage" and more failure prone. 

BIDU proved resilient near its 50 DMA line after its 10/27/09 gap down, and it was a sign of great institutional support, making a stand near its important short-term average line.  Technically it traded a little bit above the prior chart high of $439.90 following the considerable gap down on earnings news, as it clawed its way to new all-time highs on lighter than average volume, leaving questions as to how much appetite the large investors had for accumulating a greater ownership interest. It is reassuring, however, that the number of top-rated funds owning BIDU's shares rose from 103 in Dec '08 to 169 in Sep '09, solid evidence its shares were being accumulated by the institutional (I criteria) crowd. 

BIDU traded up as much as +23% from its price when featured in yellow in the 9/08/09 Mid-Day BreakOuts Report (read here). In this FSU section on 9/21/09 we summarized more extensive prior coverage this currently Featured Stock has received (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.