At the start of trading on Thursday, following four days of gains, profit-taking would be the dominant theme. But after just a few minutes of scalping, the market turned and made a steady, plodding advance to the close.
The three major indices all closed at new highs for the year, with Nasdaq (NASD) the leader, up 1.2%. The Dow Jones Industrial Average (DJI) gained 0.8% and the S&P 500 (SPX) was up 1%. The gains were impressive, with the highest volume in several weeks.
The advance was in part due to lower-than-expected jobless claims. And the trade deficit, which was more than the expected $32 billion, didn’t seem to put a damper on trading.
Treasury Secretary Geithner’s testimony before Congress was cited as a major reason for some of the buying.
He said, “Policymakers are in a position to evolve their strategy with the goal of repairing and rebuilding the economy’s foundation for future growth.” He also said that it is unlikely more bank bailout money will be needed, so its contingency provision can be removed from the budget.
Telecom stocks were strong, up 2.1%. But the sector leader was clearly airlines, with the index up 6.7%, mostly due to an upgrade of UAL Corp. (UAUA) by JPMorgan (JPM).
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At the close, the Dow had gained 80 points to 9,627, the S&P 500 gained 11 points to 1,044, and the Nasdaq rose 24 points to 2,084.
The NYSE traded 1.5 billion shares with advancers ahead of decliners by almost 4-to-1. The Nasdaq traded 733 million shares with advancers ahead by 2-to-1.
October crude oil rose 63 cents to $71.94 a barrel and would normally have been higher due to stock market strength, but gains were limited by a surprise increase in U.S. gasoline inventories. The Energy Select Sector SPDR (XLE) closed at $53.39, up 91 cents.
December gold settled off 30 cents to $996.80 an ounce, and the PHLX Gold/Silver SPDR (XAU) was up $5.19 to $167.07.
What the Markets Are Saying
With the leading indices all making new highs and closing very near to the top of the current bull channel, there is a possibility of an impending major breakout.
A technical pattern similar to this occurred in late November 2003, following a big run from the low of March 12, 2003. Just like now, technicians were looking for a correction, but instead the Dow broke from a narrow trading channel and within a month had gained another 600 points.
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If the major indices can break through the top of the bull channel, screw on your hat because an explosive breakout could result in a straight line run to our target at 1,245. Watch this closely since a quick run to the goal would also provide us with a great opportunity to cash in on some of our profits.
But with the Relative Strength Index (RSI) approaching prior overbought numbers, a shallow pullback to the bottom of the channel, now at 1,000, is more likely than a breakout.
Take advantage of any pullback to add to your positions. We are in the second phase of a bull market with much higher prices as the final goal.
Regarding support areas: As most of our readers know, I am convinced that the support zones of the S&P 500 are clearly defined as first, the bull channel, and second, the first line of support at 980 to 1,010, and, finally, the major support at 940 to 960.
Today’s Trading Landscape
Earnings to be reported include: Brady Corp. (BRC) and Campbell Soup Co. (CPB).
Economic reports due: Reuters/University of Michigan consumer confidence (the consensus expects 67), wholesale trade inventories (the consensus expects -1%), Treasury budget (the consensus expects -$140 billion), and import prices (the consensus expects +1.2%).
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