On Tuesday, stocks opened higher and held throughout the session, booking the first triple-digit gain for the Dow in a month. The strong opening was attributed to optimism that Spain would ask for financial help, higher earnings from blue chips, and better-than-expected September industrial output.
At Tuesday’s close, the Dow Jones Industrial Average gained 128 points to 13,552, the S&P 500 rose 15 points to 1,455, and the Nasdaq jumped 37 points to 3,101. Advancers exceeded decliners on the NYSE by 3-to-1 and by 1.8-to-1 on the Nasdaq. Volume remained low with the NYSE trading 640 million shares while 380 million traded on the Nasdaq.
By reversing up from the major support line at 1,418, the S&P 500 issued a strong statement that a test of the bull trend has been successful. Resistance is still defined by the downward sloping line of the bullish flag at Tuesday’s high of 1,456. But that barrier could fall soon, since for the past two days, the close has been near the high of the day, indicating that late profit-taking couldn’t overcome the buyers. The stochastic also contributed to near-term optimism by flashing a new buy signal.
The U.S. dollar, as represented by the PowerShares DB US Dollar Index Bullish (NYSE:UUP), was off Tuesday as optimism prevailed that the Europeans would get their act together.
The buck’s trend is up, but it is holding on by only a slight margin, and if Spain does capitulate and accept help from the EU, then the dollar would most likely fall. This, of course, should have the reverse impact on U.S. stocks.
Supporting a downside break is the death cross at just under $22.40. This is a long-term indicator, and so if you’re planning a trip to Europe, currency-wise there is no better time than now. The euro closed yesterday at $1.3054, up from $1.2949 on Monday.
Conclusion: Despite tension around the globe, a presidential election, and the impending fiscal cliff, stock indices held above the immediate and very important breakout levels of September (see Monday’s Daily Market Outlook for Dow charts).
My friend, Bryan Perry, summed up the current situation in his Cash Machine newsletter: “As long as our representatives are focused on worshiping the gods of re-election, any movement to resolve the fiscal cliff won’t make news until mid-November at the earliest — and that might be optimistic. Despite the ineptitude of Congress, however, I’m still firmly in the camp that an extension of the tax cuts and sequestration will be negotiated eventually. In doing so, the structural decay ofAmerica’s balance sheet gets pushed out once again, but the market will celebrate the extension.”
In other words, Congress may stall, but they will solve the fiscal cliff problem before dragging all of us over the precipice — and stocks will rally.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.