Stocks rallied on this holiday-shortened week as investors digested a slew of economic and earnings news. The fact that all three of the major averages ended the week back above their respective 50-day moving average lines helped the market's technical stance improve meaningfully.  Volume on Friday, the 10th day of the current rally attempt, was reported higher than the prior session totals on the Nasdaq exchange and on the NYSE. However, the gains were not substantial enough percentage-wise to meet the definition of a follow-through-day.  Advancers led decliners by a 3-to-2 ratio on the NYSE, but they only led narrowly on the Nasdaq exchange.  New 52-week highs outnumbered new lows on both exchanges and new lows were in the single digits.  There were 31 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 21 issues that appeared on the prior session.

On Tuesday, stocks rallied after the NY Fed released its Empire State Manufacturing Index which topped the Street's estimates. This was the fastest reading in four years and the first manufacturing report that was released in February. The stronger than expected results suggest that business conditions are improving which bodes well for the economic recovery. Stocks edged higher on Wednesday after the Federal Reserve released the minutes of last month's Fed meeting. The minutes showed that Fed officials debated how and when to shrink the central bank’s $2.26 trillion balance sheet. The minutes also showed that some officials want to begin selling assets in the “near future” while others are more content to wait until the economy stabilizes.

Fed Unexpectedly Raises Rates From +0.50% to +0.75%:
The big surprise occurred on Thursday when the Federal Reserve unexpectedly raised its discount rate, the interest rate it charges banks for emergency loans, from +0.50% to +0.75%. The Fed said that "The modifications are not expected to lead to tighter financial conditions for households and businesses and do not signal any change in the outlook for the economy or for monetary policy." Two disconcerting economic reports were released on Thursday: jobless claims surged and producer prices topped estimates. The Labor Department said the number of US workers filing new applications for unemployment benefits unexpectedly jumped last week. Initial jobless claims for state unemployment benefits rose +31,000 to +473,000 which paled in comparison to the Street’s estimate of +430,000. Elsewhere, producer prices rose sharply last month which suggests inflation is on the rise. The producer price index topped estimates and rose +1.4% from December. Economists believe that higher energy prices and unusually cold temperatures sent prices higher last month.

On Friday, the Labor Department released its consumer prices index (CPI) which rose in January but trailed estimates. Core prices which measure food and energy fell for the first time since 1982 which helped allay inflation woes. Looking at the market, Friday marked Day 10 of a new rally attempt which means that as long as the February 5th lows are not breached the window remains open for a new follow-through day (FTD) to emerge. A new follow-through day will confirm the current rally attempt and will be produced when one of the major averages rallies at least +1.7% on higher volume than the prior session as a new batch of leaders break out of fresh bases. However, if the February 5, 2010 lows are breached then the day count will be reset and a steeper correction may unfold. So far, the market’s reaction has been tepid at best to the latest round of economic and earnings data which remains a concern. Remember that the market remains in a correction until a new new follow-through day emerges. Until then, patience is paramount.

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PICTURED: The S&P 600 Small-Cap Index has a current winning streak of 8 consecutive gains on near average volume, rising above its 50-day moving average (DMA) line to within -2.4% of its recovery high.  Healthier action in small-cap shares is an especially encouraging sign for fans of this fact-based investment system.

Financial shares had a positive influence on the major averages as the Broker/Dealer Index ($XBD +1.03%) and Bank Index ($BKX +1.28%) were among Friday's standout gainers.  The Oil Services Index ($OSX +1.50%) posted a solid gain, meanwhile the Integrated Oil Index ($XOI +0.04%) was unchanged and the Gold & Silver Index ($XAU -0.51%) and Healthcare Index ($HMO -0.63%) closed modestly lower.  The tech sector was led higher by the Networking Index ($NWX +1.23%), Internet Index ($IIX +0.72%), and Semiconductor Index ($SOX +0.30%), but the Biotechnology Index ($BTK -0.06%) ended essentially flat. The Retail Index ($RLX +0.21%) tacked on its 6th consecutive small gain.

Charts courtesy www.stockcharts.com

PICTURED: The Retail Index ($RLX +0.21%) posted a 6th consecutive gain, rising well above its 50-day moving average (DMA) line.

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.