The Fed’s latest move to keep interest rates low was greeted warmly by investors yesterday, but it was their comment that “economic activity is leveling out” that turned the market as hot as the temperature outside at Broad and Wall streets.
The Fed went on to say that they “expect inflation to be remain subdued for some time, and economic activity is likely to remain weak for some time.” They further stated that they would end purchases of long-dated Treasury bonds in October, where traders had thought the cycle of buying would end in September.
The supporting statement by the Fed apparently was just what investors wanted to hear, and they responded by buying back many of the financial stocks that were hit hard in the last couple of sessions.
Financial stocks gained 2%, with insurers among the leaders, with Genworth Financial (GNW) up 5.94% and Hartford Financial (HIG) up 7.14%.
Industrials gained as well, with United Technologies (UTX) up 4.3% and Caterpillar (CAT) up 2.81%. Applied Materials (AMAT) rose 3.33%, and Cree (CREE) was up 6.94%, both on better earnings. And Cree got an extra boost from an upgrade by Merrill Lynch.
At the closing bell, the Dow Jones Industrial Average (DJI) was up 120 points to 9,362, the S&P 500 (SPX) gained 11 points to 1,006, and the Nasdaq (NASD) rose 29 points to 1,999.
The NYSE traded 1.3 billion shares with advancers ahead of decliners by just under 3-to-1. On the Nasdaq, 688 million shares traded with advancers there ahead by 5-to-2.
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Crude oil for September delivery rose 71 cents to $70.16 a barrel despite a report that U.S. demand is still at its weakest level in years. The Energy Select Sector SPDR (XLE) rose 54 cents to $50.85.
A weaker U.S. dollar and higher stock prices boosted gold on Wednesday. The December contract rose $4.90 to $952.50 an ounce, and the PHLX Gold/Silver Index (XAU) rose $1.14 to $144.67.
What the Markets Are Saying
Yesterday’s analysis of the Bollinger bands and Moving Average Convergence/Divergence (MACD) led me to conclude that the market would probably rally on the day that the FOMC announced its decision on interest rates and its review of the economy — and that’s exactly what happened. (Half of the time this stuff really works!)
But now with the trading range near the top of the Bollinger bands (overbought) and momentum in positive territory, MACD is turning down and very close to a sell signal.
The Relative Strength Index (RSI) is at 66.52 (70 is very overbought), and sentiment is neutral to overbought.
Hmmm … things are fuzzy again.
In addition, there is an intermediate trendline drawn from the March high to the June highs that connects precisely to yesterday’s high at S&P 1,013. A close over that high and the high of Aug. 7 at 1,018 would be a powerful breakout and would most likely lead to another run by the bulls.
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But with the inability yesterday to break 1,013 and our first target of 1,005 to 1,010 already met, the chances are better that we will pull back to the support zone at around 975.
But this is all trader talk. With the long-term trend up, the intermediate trend up, and the short-term trend in doubt, investors should hold their winners. We are in a bull market and weakness is our friend since it provides better prices for stocks that we’ve identified as future winners. Commit more cash on pullbacks.
Today’s Trading Landscape
Earnings to be reported include: ADA-ES, Aegon N.V., Autodesk, Blockbuster, Briggs & Stratton Corp., Cardica, Centrais Electricas Brasileiras S/A, Companhia de Bebidas das Americas, Darling International, DeVry, Dr. Pepper Snapple Group, Elizabeth Arden, Estee Lauder Companies, Gammon Gold, Gildan Activewear, I-Sector Corp., ICx Tech, Isle of Capri Casinos, Kohl’s Corp., Medidata Solutions, Navios Maritime Holdings, Nordstrom, Red Robin Gourmet Burgers, Satcon Tech Corp., Solar Power, Syneron Medical Ltd., Tam S/A, Tele Norte Leste Participacoes S/A, Urban Outfitters, Wal-Mart Stores, Watson Wyatt Worldwide and Zagg.
Economic reports due: import prices (the consensus expects -0.1%), retail and food sales (the consensus expects +0.8%), retail and food sales, excluding autos (the consensus expects 0.1%), jobless claims (the consensus expects 545,000), DJ-BTMU business barometer, business inventories (the consensus expects -0.8%), and EIA natural gas inventories.
Late news: Wal-Mart (WMT) reported Q2 earnings per share of 88 cents versus an 85-cent estimate, but same-store sales fell 1.5%, according to the Wall Street Journal. Kohl’s (KSS) reported Q2 EPS of 75 cents versus a 72-cent estimate.
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