After the big round of selling on Monday, it seemed that anything could happen — including another sell-off and a slide into new lows. Instead, the market rallied broadly Tuesday, taking back almost half of the prior loss. And despite the volatility, all 10 of the S&P’s sectors closed higher.
General Motors (GM) and Ford (F) gave an outline to Congress of their business plans and how they would use the massive infusion of capital to turn around their companies.
And backing their needs for capital were the auto sales results for November. They were worse than analysts had predicted, with GM off 41%, Ford down 31%, and Chrysler off 47%. Even Toyota (TOM) had 34% less sales in November.
Of the blue chips, General Electric (GE) had the best day up, more than 13.5%, after the company said that it would cut more costs to reach the low end of its Q4 earnings guidance while maintaining its dividend.
The financial sector recovered 7.9% of Monday’s 17% fall, but Goldman Sachs (GS) didn’t help as it fell 66 cents after The Wall Street Journal said that the once-revered investment banker would report a net loss of up to $2 billion, which is five-times worse than the consensus estimate.
At the close, the Dow Jones Industrial Average (DJI) rose 270 points to 8,419, the S&P 500 (SPX) gained 33 points, closing at 849, and the Nasdaq (NASD) gained 52 points to close at 1,450.
The New York Stock Exchange traded 1.6 billion shares, and the Nasdaq traded 912 million shares. On both exchanges, advancers beat decliners by about 3-to-1.
The January crude oil contract fell $2.32 to $46.96 a barrel on continued worries of a global recession, and the Amex Energy SPDR (XLE) gained $1.52 to close at $46.45.
Gold for February delivery rose $6.50 to $783.30 and the PHLX Gold/Silver Index (XAU) gained $5.95, closing at $94.91.
What the Markets Are Saying
Tuesday’s reaction rally took back some of Monday’s rout, but this doesn’t change the fact that the market is still in a very precarious position. After three months of declines — which is a very unusual occurrence, according to independent financial newsletter watchdog Mark Hulbert who says that it has occurred just 103 times since 1896 — the trend of the major indices still points south.
The Dow (DJI), the S&P 500 (SPX) and the NYSE Composite (NYA) all have a series of three lower highs and three lower lows in a channel downtrend that started at the beginning of October. Within the channel, there have been very volatile upswings like last week’s rally. But, despite that, the long-, medium- and short-term trends are bearish.
Sentiment has improved somewhat with the put/call ratio now neutral and Investor’s Intelligence figure at 42% (bullish), but the CBOE Volatility Index (VIX) at 63.25 is bearish and the internal indicators like Moving Average Convergence/Divergence, (MACD), stochastic, momentum, etc., are either neutral or slightly bearish.
Despite the continued possibility of another significant, but typical, dead-cat bounce, the bear is still with us. And despite the unlikely chances of a fourth month of losses (Hulbert says that has occurred 18 times), this bear could romp right into January riding a new bear-market low.
Today’s Trading Landscape
Earnings to be reported include: Aeropostale (ARO), AeroVironment (AVAV), Alloy (ALOY), Astro-Med (ALOT), Casella Waste Systems (CWST), Casey’s General Stores (CASY), Collective Brands (PSS
), Copart (CPRT), Del Monte Foods (DLM), Diamond Foods (DMND), Dynamex (DDMX), Financial Federal Corp (FIF), Infineon Technologies AG (IFX), Jo-Ann Stores (JAS), Synopsys (SNPS), Synovis Life Technologies (SYNO) and Xeta Technologies (XETA).
Several economic reports will be released today, including: the MBA Mortgage Application Survey for Nov. 28, revised 3Q productivity and labor costs (the consensus expects 3.1%), November Institute for Supply Management (ISM) Non-Manufacturing Index, API Oil Industry Report for Nov. 28, U.S. Energy Dept Oil Inventories for Nov. 28 and Federal Reserve Beige Book.
Research In Motion (RIMM) cut its Q3 earnings and revenue goals, and the stock fell 4% on the Frankfurt exchange. And also in Frankfurt, Infineon Tech (IFX) fell 20% after reporting a big loss and warned of another loss next year.
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Sam Collins is a registered, fee-based portfolio manager who may be contacted at samailc@cox.net. You can also check out an archive of some of his most recent market outlooks by clicking here.
