A disappointing forecast from Cisco Systems (CSCO) led to a lower opening Thursday, but that didn’t last long after both Wal-Mart (WMT) and Caterpillar (CAT) came to the rescue. Even the beleaguered financial stocks turned and joined the cavalry.
Wal-Mart led the Dow (DJI) after the discount retailer reported better-than-expected January sales, and by the close the stock had gained 4.2%. And CAT rose on the news that insiders were buying shares.
Even though the financial sector wasn’t one of the early leaders and Bank of America (BAC) hit a new low at $3.77, the sector later reversed, closing at a gain for the day on the government’s forthcoming plan to shore-up banks and an announcement by Senate Banking Chairman Chris Dodd that it might be possible to modify the mark-to-market rules. BAC’s chairman is said to have purchased up to 400,000 shares of the stock. The sector closed with a gain of 4.1%.
Weekly initial jobless claims were up for the fourth consecutive week, climbing 35,000 to 626,000; the number exceeded an expected 580,000 claims. Even though the report was the highest level since 1982, it did little to stymie the rally.
At the close, the Dow Jones Industrial Average (DJI) gained 106 points to finish at 8,063. The S&P 500 (SPX) was up 14 points, closing at 846, and the Nasdaq (NASD) rose 31 points at 1,546.
The New York Stock Exchanged traded 1.6 billion shares and the Nasdaq traded more than 1 billion shares. Both exchanges had advancers beat decliners by 2-to-1.
The March crude oil contract rose 85 cents to $41.17 a barrel, and the Amex Energy SPDR (XLE) gained $1.16 to close at $48.57.
Gold for February delivery rose for the second day, closing at $913.60 an ounce, up $12. The PHLX Gold/Silver Index (XAU) closed at $126.83, up $3.39. The XAU has been making steady progress since its low in October but is now approaching the $140 mark, which acted as support back in August and September and also happens to be where the 200-day moving average has settled.
What the Markets Are Saying
The evidence is growing that a major rally is about to get underway and the possibility that a major bottom has been made is increasing. The bases at Dow (DJI) 7,900 to 8,000 and the S&P 500 at 800 to 820 has not only held fast, but new buy signals from a variety of indicators are virtually telegraphing that the market is better situated for a rally than at any time since November.
And there are some interesting similarities to the bear market bottom of 2002 – 2003: The sideways pattern that began in early October is now more than four months old. And an argument could be made that the consolidation that marked the bottom of the last bear market was extended to seven months only by the Sept. 11 catastrophe, which hit smack in the middle of the consolidation.
The 2002 – 2003 bottom has other similar technical characteristics to the current consolidation. Both exhibit very high public bearish readings, both have contracting volume at the final low, both have an intra-day low and closing low at approximately the same S&P 500 (SPX) level.
And both set the closing low one day before the intraday final reversal low (the 2002 bottom was made with a closing low on Oct. 9 at SPX 776.76 and the intra-day low on Oct. 10 at 768.63. The 2008 bottom was made with a closing low on Nov. 20 at SPX 752.44 and the intra-day low on Nov. 21 at 741.02).
Is this conclusive?
No, but the CBOE Volatility Index (VIX) pattern that I mentioned earlier this week adds another similarity to the 2002 – 2003 bottom. All together, it adds up to the strong possibility of at least a major bear-market rally — and perhaps even the final bear-market low.
Today’s Trading Landscape
Earnings of note to be reported include: Ambassadors Group (EPAX), Andersons (ANDE), Aon Corp (AON), CNA Surety (SUR), Hillenbrand (HI), Infineon Technologies AG (IFX), Kimball Int’l (KBALB), LaBarge (LB), North American Energy Partners (NOA) and Nu Skin (NUS).
Omega HealthCare Investors (OHI), OneBeacon Insurance Goup (OB), Sensient Technologies Corp (SXT), Syngenta (SYT), TECO Energy (TE), Toyota Motor Corp (TM), Viad Corp (VII), Weyerhaeuser Co (WY) and White Mountains Insurance Group (WTM).
The following economic reports are due: January non-farm payrolls (the consensus expects a loss of 525,000), January unemployment rate (the consensus expects 7.5%), and December Consumer Credit (the consensus expects a $3.5 billion loss).
Late news: Toyota Motors (TM) reported its first annual loss since 1950. AON Corp. (AOC) reported 43 cents versus an expected 78 cents.
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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.
