The auto bailout took center stage again Wednesday, but in contrast to Tuesday’s session, which closed lower, yesterday stocks traded higher as plans took shape.
Nevertheless, it was a volatile session with the S&P 500 (SPX) trading to a gain of 2.2%, then to a loss of 0.4% and finally a gain of 1.2%. The final gain resulted from a story which said that the White House had reached an agreement on the structuring of a $15-billion aid package for the ‘Big Three’ automakers.
The basic infrastructure stocks led the market again in anticipation of a major infrastructure investment by the new Obama administration: Deere (DE) gained 2%, Caterpillar (CAT) rose 3%, and Alcoa (AA) was up 6.8%.
The energy sector recorded the biggest gains: Chevron (CVX) gained 4.1%, Exxon Mobil (XOM) rose 2.4%, and Chesapeake Energy (CHK) leaped over 23% on a gain by crude oil of over 3%.
But the financial sector fell again with American International Group (AIG) dropping more than 9% and American Express (AXP) falling more than 7%. AXP was downgraded by several analysts.
At the close, the Dow Jones Industrial Average (DJI) rose 70 points to 8,761, the S&P 500 (SPX) gained more than 10 points, closing at 899, and the Nasdaq (NASD) was up 18 points at 1,565.
Volume was light, with the New York Stock Exchange trading 1.3 billion shares and the Nasdaq doing 773 million. On both exchanges, breadth was positive at 2-to-1 more advancers than decliners.
Crude Oil for January delivery rose $1.45 to $43.52 a barrel, and the Amex Energy SPDR (XLE) rose $2.41 to $48.99.
Gold (February contract) surged $34.60 to $808.80 per troy ounce on the rally in oil. The PHLX Gold/Silver Index (XAU) was up $10.37 to $106.43, opening a trading gap which will most likely be quickly closed.
What the Markets Are Saying
Even though the major averages had a plus day on Wednesday, their intraday highs have been lower and almost exactly track the down-trending 50-day moving averages. And each has something else in common, too — an overvalued stochastic that could be telling us that the next move is down to the support at Dow (DJI) 8,200 and S&P 500 (SPX) 800.
But even if this happens, the tone of the market has changed, with bad news having little impact and stocks in a short-term uptrend for the first time since October. The market appears to be stuck in the support zone of S&P 840-916 and then 916-985, and from the looks of it we may see those numbers for a long time.
A settlement of the auto crisis will undoubtedly have some upside impact and may tell us just how far a rally on perceived good news can take the averages. But with all of the other worries on the world and domestic economies still in high profile, it’s difficult to imagine that there might be a bull strong enough to permanently climb these walls of worry.
Today’s Trading Landscape
Earnings to be reported include: American Italian Pasta Co (AIPC), American Pacific Corp (APFC), BRT Realty Trust (BRT), Ciena Corp (CIEN), Costco Wholesale Corp (COST), Esterline Technologies (ESL), Gildan Activewear (GIL), Global Crossing (GLBC), Integral Systems (ISYS), Krispy Kreme Doughnut (KKD), Lululemon Athletica (LULU), NCI Building Systemsn (NCS), Nevada Gold & Casinos (UWN) and White Electronic Designs (WEDC).
The following economic reports are due today: initial jobless claims for the week of Dec. 6 (the consensus expects an increase of 11,000), October Trade Balance (the consensus expects $52.5 billion), November Import Prices, and the DJ-BTMU Business Barometer for Nov. 29.
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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.
