Despite the Fed’s grim assessment of the economy, lower shipments from U.S. factories and more reports of lower sales of previously owned homes, the stock market rallied again Tuesday. And another piece of unfavorable news also surfaced from the Fed meeting and that is the government’s estimate of higher unemployment which may not peak until 2010.
Energy stocks led a timid advance of the major indices but that group still gained 3%. Technology stocks also advanced with Microsoft (MSFT) and Hewlett-Packard (HPQ) gaining ground.
And the infrastructure stocks had another day of gains; Alcoa (AA) rose on the announced cut of 13% of its worldwide work force and US Steel (X) gained almost 2% even after downward earnings estimates by Wall Street analysts.
One analyst said, “The economic headlines remain grim stocks are holding higher … because a lot of the bad news was already discounted when the stock market crashed in 2008.”
Whatever the reason, the Dow Jones Industrial Average (DJI) closed at 9,015, up 62 points. The S&P 500 (SPX) added seven points at 935 and the Nasdaq (NASD) gained 24 points, closing at 1,652.
Volume on both exchanges was light. The New York Stock Exchange traded 1.3 billion shares, with advancers ahead of decliners by about 4-to-1, while on Nasdaq 787 million shares traded with advancers there ahead by almost 3-to-1.
The December crude oil contract was off 23 cents and closed at $48.58 a barrel; the Amex Energy SPDR (XLE) rose 56 cents to $51.89.
Gold for February delivery closed $8.20 higher at $866 per troy ounce, and the PHLX Gold/Silver Index (XAU) rose $2.67, closing at $121.45.
What the Markets Are Saying
A rally in the face of bad news is a favorable sign for stocks, despite the lower volume and the unrelenting stories of fear from market commentators and the press. Day after day, we’ve been besieged with how bad the economy really is and, yet, stocks keep plodding their way higher.
The advance Tuesday triggered minor buy signals from our in-house indicator, the Collins-Bollinger Reversal (CBR), on two major indices: the Nasdaq (NASD) and one of my favorites, the NYSE Composite (NYA).
Both signaled that prices should be strong enough to continue running to the next level of resistance at Nasdaq 1,780 and NYSE 6,300. And these buy signals are supported by the upside crossing of the 50-day moving average by the 20-day moving average. But both signals are short-term in nature.
All of our internal — and most of the sentiment indicators — are now so overbought that it’s difficult to jump onto the bull’s wagon. Thus, in the absence of evidence of a major market bottom, meaning that all of the major indices are in major bear markets, we remain on the defense.
Today’s Trading Landscape
Earnings of note to be reported include: Bed Bath & Beyond (BBBY), Christopher & Banks (CBK), Constellation Brands (STZ), Family Dollar (FDO), Immucor (BLUD), Monsanto (MON), Richardson Electronics (RELL), Robbins & Myers (RBN), Ruby Tuesday (RT), Supervalu (SVU), UniFirst (UNF) and WD-40 Co (WDFC).
The following economic reports are due: MBA Mortgage Application Survey, January American Data Processing (ADP) Employment Survey, U.S. Energy Dept Oil Inventories, and the API Oil Industry Report.
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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.
