The stock market did a flip yesterday. In contrast to Monday’s lower opening and lower close, yesterday the market opened higher and held its gains right to the end.
On Monday, the financials took a hit, but yesterday financials, energy and materials were the leaders. The energy sector was up 1.4%, materials gained 1.2%, and financials led the list, up 2.3%. And real-estate investment trusts (REITs) moved sharply higher ahead of several REIT initial public offerings.
Much of this flip was due to a lower U.S. dollar, which, in turn, led to buying in commodities and stocks related to them.
The US Dollar Index fell 0.9%, its worst daily loss in two months, while the euro hit a new high for 2009 of $1.48. In fact, the dollar weakened against every major currency. (Learn how you can profit from a falling dollar.)
At the close, the Dow Jones Industrial Average (DJI) rose 51 points to 9,830, the S&P 500 (SPX) gained 7 points to 1,072, and the Nasdaq (NASD) rose 8 points to 2,146.
Volume contracted to 1.3 billion shares traded on the NYSE, and advancers were ahead of decliners by slightly less than 3-to-1. The Nasdaq traded 739 million shares with advancers there ahead by 15-to-11.
October crude oil, which expired yesterday, rose $1.84 to $71.55 a barrel, and the Energy Select Sector SPDR (XLE) gained 86 cents, closing at $55.57. The recent rise in the XLE may signal a new round of buying, as last week it broke out of the top at $55 with the next target being $64.
As the dollar fell, gold rose, and the December contract gained $10.60, closing at $1,015.50 an ounce. The PHLX Gold/Silver Index (XAU) gained $3.84, closing at $169.86, but there is heavy resistance at $180 to $200 from a band of trading that took place from October 2007 to July 2008.
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What the Markets Are Saying
Momentum readings on each of the major indices are high and trending higher. I’d be concerned about an overbought situation if we were in the last stages of a bull market. But at the early part of a second stage, high momentum tends to indicate that prices will go even higher. And the Nasdaq did close higher yesterday, breaking into new highs for the year.
The strongest momentum reading this year was posted on March 23 at Dow 7,775. That led to the next high on May 6 at 8,515, and, after a small correction, to the June 11 high of 8,878. After the July pullback when, as you may recall, technicians were screaming that the rally was over and were going to test the market’s low, momentum turned high again. On July 24, it registered its second-highest reading of the year, and that led to a sustained rally that took the Dow from 9,093 to 9,580.
So, in a bull market, high momentum, like the high percentage reading above the 200-day moving average (covered yesterday), usually results in higher stock prices. It is telling us that there is still a lot of buying power waiting in the wings for a pullback to use as a buying opportunity.
Today’s Trading Landscape
Earnings to be reported include: AutoZone (AZO), Bed Bath & Beyond (BBBY), Cintas Corp. (CTAS), Comtech Telecommunications Corp. (CMTL), Copart (CPRT), General Mills (GIS), Nike (NKE), Paychex (PAYX) and Red Hat (RHT).
Economic reports due: mortgage applications and EIA Petroleum Status Report.
Late news: mortgage applications were up 12.8% last week.
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