A broader-based rally propelled financial stocks on Tuesday, following an opening that initially looked like a continuation of Monday’s closing hour sell-off. But after the Street digested the housing starts data of 543,000 units instead of an expected 450,000, green replaced red on traders’ screens and buying dominated the remainder of the day.
But Alcoa (AA) disappointed forecasts and cut its dividend, and mining and metals stocks were weak as they succumbed to profit-taking following a recent advance. But technology stocks rebounded after falling on Monday. Google (GOOG) gained 4.9%, Apple (AAPL) was up 4.44%, and Research in Motion (RIMM) rose by 6.36%.
Of the Dow (DJI) stocks, JPMorgan Chase (JPM) led, up 8.9%, and Citigroup (C) gained 7.7% with its highest close since Feb. 25. Citigroup has more than doubled since March 5. U.S. Bancorp gained 5.37% and SunTrust Bank (STI) was up 5.84%.
At the close, the Dow Jones Industrial Average (DJI) had gained 179 points to 7,396, the S&P 500 (SPX) rose 24 points to 778, and the Nasdaq (NASD) gained 58 points, closing at 1,462.
The New York Stock Exchange traded 1.5 billion shares with advancers ahead of decliners by 4-to-1. On the Nasdaq, the breadth ratio was also a positive 4-to-1 with 770 million shares traded.
The April crude oil contract closed at $49.16 a barrel, up $1.81, and the Amex Energy SPDR (XLE) gained $1.45 to $43.48.
Gold for April delivery fell $5.20, closing at $916.80 an ounce. The PHLX Gold/Silver Index (XAU) fell $1.85 and closed at $119.12.
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What the Markets Are Saying
With a stock market advance in six of the past eight sessions, the bulls are now feeling in complete control. And it is no wonder that many are calling the low of early March the end of the bear market.
The Dow Industrials (DJI) are up 14.79% from the March 6 low, the S&P 500 (SPX) has gained 16.64%, and the Nasdaq (NASD) has gained 15.48%.
But as the indices rise to the top of the first overhead barrier, volume is declining on days when the market advances.
On Friday, the NYSE traded 1.6 billion shares, down from Thursday’s 1.8 billion shares. And yesterday, the NYSE traded just 1.5 billion shares. The highest volume day recently was Monday, a down-day during which 1.9 billion shares traded.
With major market reversals we normally see high volume on up-days and low volume on down-days. But during rallies in bear markets, the opposite is true — and that’s what we’re seeing now.
As a result of the enthusiasm generated from a week of solid advances, the internal indicators are now overbought. In fact, the long stochastic is more overbought than at any time since the Nov. 4 top, which marked the high of the bounce following the October low.
Traders who are long would be wise to nail down profits and prepare for a downside reversal. The buying could continue for a day or two more but all indications are that the rally is nearing its upper limit.
Today’s Trading Landscape
Earnings to be reported include: Actuant Corp (ATU), Anthracite Capital (AHR), Cintas Corp (CTAS), Clarcor (CLC), Darden Restaurants (DRI) and General Mills (GIS).
Herman Miller (MLHR), HIS Inc. (IHS), Linktone (LTON), Luby’s (LUB), Nike (NKE), Oracle (ORCL), Paragon Shipping (PRGN), Presstek (PRST), Shamir Optical Industry Ltd (SHMR), Somanetics Corp (SMTS), and Wimm-Bill-Dann Foods OJSC (WBD).
The following economic reports are due today: Mortgage Applications Refinance Index, February Consumer Price Index (the consensus expects 0.4%), February Consumer Price Index excluding food and energy (the consensus expects 0.1%), Q4 Current Account (the consensus expects negative $137.5 billion), U.S. Energy Dept. Oil Inventories for March 13, and March Federal Open Market Committee (FOMC) Interest Rate Decision.
Late news: According to The Wall Street Journal, IBM is in talks to buy Sun Microsystems (JAVA).
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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.
