Stocks rallied Wednesday as a result of four economic reports: the Automatic Data Processing (ADP) Employment Report, the Institute for Supply Management (ISM) Manufacturing Index, and the monthly construction report, which all came in just about where expected. So, with no downward surprises the market reacted favorably.
But what really brought in buyers was the pending home sales report. It was expected to be unchanged from a big decline in January and instead showed an increase in sales of 2.1%. After a slow start to the day, the mid-morning report turned the tide and following some profit-taking in mid-afternoon, the advance continued.
There also seemed to be buying in financial stocks related to a meeting this morning at the Financial Accounting Standards Board. It is anticipated that the board will relax the mark-to-market rules for credit securities. But the members of the board have made no commitment to make the change, and the outcome of the G-20 meeting is in doubt, as well.
Auto sales for March came in better than expected, with Ford’s (F) sales down 41%, but beating estimates, and the stock rose 4.18%. General Motors’ (GM) sales were down 44.7% and the stock fell 0.5%. Toyota Motors (TM) rose 7.27% because of a “daily selling rate increased from February,” according to the head of Toyota USA.
At the close, the Dow Jones Industrial Average (DJI) had gained 153 points to 7,762. The S&P 500 (SPX) was ahead by 13 points to 811, and the Nasdaq (NASD) gained 23 points, closing at 1,552.
On the New York Stock Exchange, advancers were ahead by 3-to-1 on volume of 1.5 billion shares, and the Nasdaq traded 785 million shares with advancers ahead by just under 2-to-1.
Crude oil (May contract) fell $1.27 to $48.39 a barrel due to a report that U.S. petroleum inventories had an unexpected increase last week. The Amex Energy SPDR (XLE) gained 90 cents, closing at $43.36.
The April gold contract ended the day with an increase of $3.50 to $26.10 an ounce on speculation that the G-20 meeting may not alter the world’s economic situation. The PHLX Gold/Silver Index (XAU) gained $6.10 to $140.59.
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What the Markets Are Saying
Even though Friday’s and Monday’s selling moderated some of the overbought internal indicators, those indicators — chiefly the Moving Average Convergence/Divergence (MACD) and Stochastic — are still very overbought and momentum has fallen to the point where it will take some hefty volume to make a meaningful turn up again.
And speaking of volume: Just when the bulls need a big chunk of buying to penetrate into the massive overhead beginning at S&P 500 (SPX) 820, volume contracted yesterday to just 1.5 billion shares traded on the NYSE.
There are more negatives for the bulls: The put/call ratios are fairly low and the sentiment numbers for the ISEE Index are high while Rydex traders have moved to bullish funds according to Standard & Poor’s.
As our readers know, I’ve been on the bearish side for almost 18 months and remain there for the simple reason that the stock market is still in a major bear market. Even though the past couple of weeks have been tough on bears, there is no technical reason to give up on the major market trend just because of a typically violent rally.
But, that being said, each investor must make his own decision as to how far he will carry a trading position. Stop-loss orders will get traders out early, but for those who tend to hang onto their short positions, a strong stomach is a basic requirement as they wait for the inevitable test of the March lows.
Wall Street has many trite sayings and one is “If you can’t sleep with your investments, then sell until you sleep,” and that goes for buying in shorts, as well. But those who cover now may lie awake thinking of what might have been.
Today’s Trading Landscape
Earnings to be reported include: A Schulman, Acuity Brands, AngioDynamics, CarMax, Cascade Corp, Demandtec, Global Payments, Lawson Software, Lindsay Corp, Micron Technology, Monsanto Co, MSC Industrial Direct, MSCI, Origin Agritech Ltd, Research in Motion Ltd, Rite Aid Corp, Rostelecom, and Schnitzer Steel Industries.
In terms of economic reports, we can expect the initial jobless claims for the week of March 28 (the consensus expects an increase of 3,000), February Factory Orders (the consensus expects 2%), and the DJ-BTMU Business Barometer for March 21.
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