Friday’s post-Christmas session resulted in the fourth consecutive record close for the Dow and another new high for the S&P 500, with 7 of its 10 sectors in the black.
Although the Dow has advanced 5.8% in the past seven sessions, Friday’s gain was made with the second lowest volume of the year on the New York Stock Exchange. This was no doubt due to the closing of many exchanges throughout the world and limited trading by institutional investors.
Oil futures ended Friday near five-year lows. Crude fell 2% on the day to $54.73 a barrel, and was down 4.2% for the week. The latest selling was due to a reported increase of U.S. oil supplies and Saudi Arabia’s 2015 budget, which signaled the country would not cut production even if lower oil prices cut into revenue.
Natural gas fell 0.8% to $3.007 per BTU, and in intraday trading fell below $3 for the first time since Q3 2012.
Amazon.com, Inc. (AMZN) rose 2% on Friday after the company declared its smartphone app a success with sales doubling this year. Yet gains in the Nasdaq, up 0.7%, were primarily driven by the biotech group. The iShares NASDAQ Biotechnology Index ETF (IBB) gained 2.3%.
Gold closed at $1,195.30 an ounce, up 1.9%. And Treasury prices rose, dropping the yield on the 10-year note to 2.25%.
At Friday’s close, the Dow Jones Industrial Average gained 24 points at 18,054, the S&P 500 rose 7 points to 2,089, the Nasdaq gained 33 points at 4,807, and the Russell 2000 was up 8 points at 1,215.
The NYSE’s primary market traded 445 million shares with total volume of 1.7 billion shares, and the Nasdaq crossed 920 million shares. On both major exchanges, advancers outpaced decliners by about 2-to-1.
The Russell 2000 appears to have punched through a triple-top on Friday with a new all-time high of 1,217.01 and a new closing high at 1,215.21. The prior high was made on July 1 at 1,213.55.
The iShares Russell 2000 Index ETF (IWM) did not confirm a breakout, closing fractionally below the prior high at $120.97. It did, however, jump to a new closing high at $120.54 versus a closing high of $120.14, also made on July 1.
Conclusion
Forgive my skepticism, but inconsistencies trouble me. Specifically, it is troubling when an ETF that is built to track an index fails to confirm a new high made by the index.
Also troubling is the enormous jump in the public’s bullish sentiment as recorded in the recent AAII numbers. In one week, bullish sentiment has increased from 38.74% to 50.94%, and bearish sentiment has fallen to just 18.87% from 26.88%. And then there is the enormous bullish push by the media — virtually everyone is calling for a continuation of the near-term trend.
Despite these notes of caution, I would be surprised if the major indices, including the Nasdaq and Russell 2000, did not continue higher for the next three days. But at 17.8 times next year’s earnings, and following the enormous institutional chase designed to pretty up portfolios for year-end reports, expect an adjustment in January. Therefore, traders may wish to pursue stocks through tomorrow but hold off on new positions as we enter 2015.
I referred to the similar picture of a strong December followed by a very weak January in the Dec. 24 Daily Market Outlook. The long- and intermediate-term trends are up, but can the near-term break be sustained without an adjustment, perhaps even a correction?
That is the question as we enter the new year.
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.
