Stocks treaded water yesterday after the two-week rally that sent the broad-based indices to new highs for the year.
In the past two weeks, the major indices have gained more than 11%, and much of that supported by new investors’ response to positive earnings reports, according to the Wall Street Journal.
Despite profit-taking, the S&P 500 (SPX) closed at a new high for the year, and both the Dow Jones Industrial Average (DJI) and the Nasdaq (NASD) closed higher.
After some initial selling, the market responded to an unexpected increase in the sales of new homes in June, which quintupled analysts’ expectations by rising 11% and hitting an annualized rate of 384,000. The supply of unsold homes moved from 10.2 months in May to 8.8 months.
Building stocks rose, and so did banks, despite a Wall Street Journal article that said that lending was down 3% among the 15 large banks in the second quarter. This suggests that many banks are being very cautious with their lending, and similar statistics pointed to the same situation in Europe.
At the close, the Dow was up 15 points to 9,108, the S&P 500 gained 3 points to 982, and the Nasdaq rose 2 points to 1,968.
The NYSE traded just over 1 billion shares with advancers ahead by less than 2-to-1. The Nasdaq crossed 656 million shares with advancers ahead by 7-to-5.
September crude oil rose 33 cents to finish at $68.38 a barrel, and the Energy Select Sector SPDR (XLE) rose 17 cents to finish at $51.36.
August gold gained 40 cents to close at $953.50, and the PHLX Gold/Silver Index (XAU) fell 60 cents to $148.90.
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What the Markets Are Saying
Most technicians are still expressing amazement over the 12-day advance of Nasdaq, the enormous breakout of the broad market, and the demise of what looked like the perfect head-and-shoulders top.
Well, the market has again succeeded in confusing a vast number of investors by doing the exact opposite of what was expected — and doing it in multiples.
For example, not only did Nasdaq put together a string of 12 winning days — the first since 1991 and 1992 — but the six-day summation of the advancing to declining volume has been above 2.3:1 during the last seven days, and hit an extreme of 3.45:1 on Monday.
According to S&P analyst Mark Arbeter, this is “by far, the strongest evidence of accumulation on the Nasdaq in at least the last 15 years.” He also points out that “the only time we have seen similar levels of accumulation on the Nasdaq in recent history was in the latter part of 2002 and early 2003.”
If you were in the market then, you may remember that this marked the third and final leg of a triple-bottom and established the end to that bear market. The S&P 500 then advanced for five years from that bottom at 789 to the top at 1,576, which was made in October 2007.
Some of the advance resulted from short-covering, especially the early part of the buying. But as the market broke through several resistance barriers, it became clear that new money had entered the arena, and that this was much more than just a panic among the shorts. And, despite yesterday’s reduced volume, the buying continued with the S&P 500 marching again into new territory.
Now most technicians are saying that the market is exhausted and due for a rest.
Maybe, but this bull is young and strong, so if he does rest, don’t look for him to sleep.
Again, according to S&P, “The 10-day ratio of NYSE advancing volume to declining volume hit 5.4:1 on Thursday, the highest reading since the March/April period.” And we all know what happened after that — another 20% advance.
Don’t fall for the bull that the market is due for a major pullback. Instead, ride the bull to new heights.
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Today’s Trading Landscape
Earnings to be reported include: A.M. Castle & Co., Actel, Advent Software, AGCO, Alliance Holdings Group LP, Alliance Resource Partners LP, AMB Property Corp., Amedisys, American Campus Communities, American Commercial Lines, American Dental Partners, American Ecology, American Financial Group, AMETEK, Anixter International, Arthur J. Gallagher & Co., ATC Technology Corp., AVX Corp., B&G Foods, Banco Bilbao Vizcaya Argentaria, S.A., Bank of Smithtown, Barrett Business Services, BE Aerospace, Black Box Network Services, BP plc, Brandywine Realty Trust, Buckeye Partners, Calamos Asset Management, Callidus Software, Canon, Capella Education Co., Carter’s, Cascade Microtech, Cavium Networks, Celanese Corp., Centene Corp., Ceradyne, Check Point Software Technologies, Chicago Bridge & Iron, Ciber, Coach, Compass Minerals, Computer Task Group, Corn Products International, Coventry Health Care, CSG Systems, Cynosure, Deutsche Bank, DiamondRock Hospitality Co., DineEquity, DreamWorks Animation SKG, EarthLink, Ecolab, eHealth, Encore Acquisition Co, Endurance Specialty Holdings, Energizer, Epicor Software, EPIQ Systems, ev3, Exactech, FalconStor Software, FEMSA, Fidelty National Information, FirstMerit, Flagstar Bancorp, FMC Technologies, FPL Group, Fresh Del Monte Produce, Group 1 Automotive, Grupo Aeroportuario del Sureste, Grupo TMM S.A., Hanger Orthopedic Group, Harsco Corp., Hatteras Financial Corp., Health Grades, Heidrick and Struggles International, Hertz Global Holdings, Hitachi Ltd., Innovative Solutions and Support, Integrated Device Technology, Integrated Silicon Solution, InterDigital, Inverness Medical Innovations, Ixyx Corp., Jacobs Engineering Group, Jakks Pacific, Keithley Instruments, Keynote Systems, Kona Grill, KVH Industries, L.B. Foster, LAN Airlines, Landec Corp., LCA-Vision, LECG Corp., Lexicon Pharmaceuticals, Life Technologies Corp., Lincoln Electric Holdings, Luxottica Group, MarketAxess Holdings, Massey Energy Co, McKesson Corp., Merit Medical Systems, Metalico, Methanex Corp., Mine Safety Appliances, Montpelier Re Holdings Ltd., Nalco Holding Co., Nash Finch Co., National Oilwell Varco, Neogenomics, New Alliance Bancshares, NewMarket Corp., Norfolk Southern Corp., Office Depot, Orbital Sciences Corp., PACCAR, Panera Bread, Par Technology, Parametric Technology Corp., Patriot Coal Corp., Peet’s Coffee & Tea, PepsiAmericas, Potlatch, Pozen, Psychiatric Solutions, QLT, Quantum Corp., Questar Corp., RadiSys Corp., Randgold Resources Ltd., RenaissanceRe Holdings, Rockwell Automation, Rogers Communications, Roper Industries, SBA Communications, SeaBright Insurance Holdings, Semiconductor Manufacturing International Corp., Semitool, Signature Bank New York, Simpson Manufacturing, Smith International, Sonic Automotive, Spartan Stores, StarTek, State Auto Financial, Stepan Co., Stericycle, STMicroelectronics, Superior Energy Services, Supervalu, Switch and Data, Tamalpais Bancorp, Tanger Factory Outlet Centers, TECO Energy, Teva Pharmaceutical, Textron, The Interpublic Group of Companies, The McGraw-Hill Companies, Thermadyne Holdings Corp., THQ, Trimble Navigation, Trustmark Corp., TSYS, Ultimate Software, Under Armour, Unisys, United States Steel Corp., Universal Health Services, USANA Health Sciences, Valero Energy Corp., Viacom, Vishay Intertechnology, Waddell & Reed Financial, Waters Corp., Watts Water Technologies, Websense, WellCare Health Plans, Western Digital Corp., Wilshire Bancorp and XL Capital Ltd.
Economic reports due: ICSC-Goldman Store Sales, Redbook, S&P Case-Shiller home price index, consumer confidence (the consensus expects 50), and State Street Investor Confidence Index.
Late news: Health Management (HMA) reported Q2 earnings per share of 13 cents versus an estimated 10 cents. Amgen (AMGN) reported $1.29 versus an estimated $1.16. Rent-A-Center (RCII) reported 61 cents versus an estimated 53 cents. Coach (COH) reported 43 cents versus a 43-cent estimate. Teva Pharmaceuticals (TEVA) reported 83 cents versus an estimated 80 cents. McGraw-Hill (MHP) reported 58 cents versus an estimated 55 cents.
Bank of America (BAC) plans to cut 10% of its branches.
The Commodity Futures Trading Commission (CFTC) plans to issue a report showing that speculators drove price swings in oil, according to the Wall Street Journal.
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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 his most recent market outlooks.
