The market was a bit nervous prior to Monday’s opening, as traders tried to assess any possible damage to Chinese trade relations from the U.S. decision to place punitive sanctions on Chinese tire imports. The Chinese responded with threats to restrict chicken and auto-product imports from the United States.

Prices plummeted 60 Dow points at the opening, but quickly recovered and spent the remainder of the day making up for the early losses.

Among the leading groups on Monday was the tire industry with Goodyear Tire & Rubber Co. (GT) up 3% and Cooper Tire & Rubber Co. (CTB) up 7.1%. But, overall, gains were restrained by selling in Sanderson Farms (SAFM), off about 0.5%, and Tyson Foods (TSN), which was down more than 2%.

The U.S. dollar fell again versus the euro. Treasury prices also fell with the two-year note now yielding 0.919% and the 10-year note at 3.421%.

At the close, the Dow Jones Industrial Average (DJI) was up 21 points to 9,627, the S&P 500 (SPX) gained 7 points to 1,049, and the Nasdaq (NASD) gained 11 points to 2,092.

The NYSE traded 1.2 billion shares with advancers over decliners by 2-to-1. On the Nasdaq, advancers were ahead by 8-to-5 on volume of 643 million shares.

October crude oil fell 43 cents to $68.86 a barrel, and the Energy Select Sector SPDR (XLE) rose 40 cents to $54.

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December gold slipped, as well, off $5.30 to $1,001.10 an ounce. The PHLX Gold/Silver Index (XAU) fell $2.06 to $167.02.

What the Markets Are Saying

After a rocky start with the Chinese and Americans threatening a trade war that probably won’t happen, shorts sellers ran for cover when the market lacked downside follow-through. And that’s the way it has been for weeks. It seems that everyone is looking for a bargain and the market is loathe to provide many of them.

With another new high for the S&P 500 and Nasdaq, stocks continue to ride a wave of buying.

Volume is not high, but it is obvious that the few sellers that are active are selling short, and they cover very quickly when threatened with a rally.

So, with the near-, intermediate- and long-term trends up, how do we determine how far the current rally can take the S&P 500?

Technicians apply many techniques for setting objectives, but my most dependable methods are measurements from reliable formations, e.g., head-and-shoulders and Fibonacci numbers. I’ve already given you the measurement from the current reversed head-and-shoulders formation (which targets 1,245), so let’s take a look at Fibonacci.

Without getting into an involved discussion of the great mathematician’s methods, let’s just say that the system most often works, and when combined with other analysis can be very useful. 

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Investopedia says, “Fibonacci retracement is created by taking two extreme points (usually a major peak and trough) on a stock chart and dividing the vertical distance by the key Fibonacci ratios of 23.6%, 38.2%, 50%, 61.8% and 100%. Once these levels are identified, horizontal lines are drawn and used to identify possible support and resistance levels.”

If we apply this to the decline from the peak in October 2007 to the trough in March 2009, then the result of a 61.8% retracement targets the 1,226 region. 

So there we are: 1,226 to 1,245. Either way, we’re winners.

Stay long or be wrong.

Today’s Trading Landscape

Earnings to be reported include: Adobe Systems (ADBE), Best Buy (BBY), Cracker Barrel Old Country Store Inc. (CBRL) and Kroger Co. (KR).

Economic reports due: ICSC/Goldman Sachs chain store sales, producer price index (the consensus expects 0.8%; ex-food and energy it expects 0.1%), retail and food sales (the consensus expects 2%; ex-autos it expects 0.4%), NY Fed Empire State Manufacturing Survey (the consensus expects 14), Redbook, business inventories (the consensus expects -0.9%), API oil industry report and ABC/Washington Post Consumer Confidence Index. 

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