May ended with a late surge of buying in the last hour of trading, which pushed the Dow Jones Industrial Average (DJI) up more than 100 points. A more positive outlook for the global economy appeared to be the reason for the late rally, and that optimism has pushed commodity prices up, too.
The S&P 500 (SPX) rose 5.3% in May for a three-month gain of more than 25% — its biggest monthly advance since August 1938.
The Wall Street Journal pointed out that May provided oil futures with their biggest monthly percentage gain (up 29.7%) in a decade. Also, silver rose over 26% and gold gained 9.9%.
Even the bankruptcy of General Motors (GM), which is expected this morning, didn’t slow the buying last week.
The holiday-shortened week ended with the Dow (DJI) gaining 2.7%; it closed at 8,500, up 97 points. The S&P 500 (SPX) was up 3.6%, gaining 12 points to end at 919. The Nasdaq (NASD) rose 4.9%, or 23 points, to 1,774.
The New York Stock Exchange traded 1.9 billion shares with advancers ahead of decliners by 3-to-1, and on the Nasdaq, 9.9 million shares were exchanged with advancers ahead by a little less than 2-to-1.
Crude oil for July delivery gained $1.23 at $66.31 a barrel, and Amex Energy SPDR (XLE) rose 95 cents to $51.68 punching through the 200-day moving average. The XLE is now at a quadruple-top and a close above the May-8 high of $52.35 will break it out with a possible target of $70-plus.
June Gold rose $17.30 to $978.80 an ounce, its highest close since late February. The PHLX Gold/Silver Index (XAU) gained $4.82, closing at $160.16, breaking it out of a five-month channel. The next area of resistance for the XAU begins at around $175.
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What the Markets Are Saying
I’m home — after two weeks in Europe, where recession is only talked about in the news while, on the streets, shoppers are everywhere exercising their buying power. And the shoppers are Europeans driving their late-model cars that clog the thoroughfares of major cities — hardly the signs of a serious recession.
As anecdotal as that may seem, I find upon returning that, instead of a market in retreat, which is what it looked like just two weeks ago, stocks have strengthened. The major indices are grinding out a flag pattern with a Dow (DJI) base of around 8,000 and an S&P 500 (SPX) base at 875.
So far, the deepest pullback for the S&P is just 5% from its May 8 recovery high, and that pullback has formed a double-bottom base with a reversal (up) last Tuesday.
Our own ChangeWave Alliance research showed a huge one-month jump in sentiment, which reinforces the case for a recovering economy. And last week, the U.S. consumer confidence came in at a much better-than-expected reading of 54.9 while the consensus was for 42.6.
After I’ve studied the market’s internal numbers I’ll be back with a more in-depth report. It is clear, however, that commodities are very strong with metals leading the way. But precious metals may give ground as the leader to the oil patch where there is still a major investment opportunity.
The best-acting index is the Nasdaq (NASD) with a closing on Friday above the March 7 recovery high of 1,773 and a strong buy signal from our own internal indicator, the Collins-Bollinger Reversal, or CBR. In order for the other major indices to follow through with a confirming high, they must break through their double tops at around Dow 8,650 and S&P 925 to 944. Stay tuned for more.
Today’s Trading Landscape
Earnings to be reported include: Altera Corp, Apollo Investment Corp, Enersys, Gladstone Investment Corp, Lions Gate Entertainment, Omega Navigation Enterprises, and Plato Learning.
Several economic reports are due including the April Personal Income (the consensus expects negative 0.2%), April Personal Spending (the consensus expects negative 0.1%), April Construction Spending (the consensus expects negative 0.9%), and the May Institute for Supply Management (ISM) Manufacturing Index (the consensus expects 41.5).
Late news: Chrysler’s sale to Fiat has been approved.
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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.
