Friday’s modest decline, following five days of gains and new highs for the year on the Dow Jones Industrial Average (DJI), must be considered just a bit of profit-taking.
The market had a psychological reason to pull back, that, of course, being the eighth anniversary of the 2001 terrorist attacks. Curiously, as pointed out by the Wall Street Journal, Friday’s close was just a 10th of a point below the close of the day of those attacks at 9,605.51.
But, while the broader indices were declining, the Dow Transportation Average (DJT) continued on a very sharp advance, up 2% on Friday and up 5.6% for the week. This should encourage the bulls, since the index, which is made up of trucking, rail and shipping companies, is considered one of the most reliable indicators of a turn in the economy since these companies are the first to directly benefit from new orders.
FedEx (FDX) jumped 6.4% after it said that better-than-expected volume in international shipments is helping its performance. FDX also said that it should easily exceed analysts’ Q1 earnings forecast of 44 cents.
At the close, the Dow was off 2 points to 9,606, the S&P 500 (SPX) fell 1.41 points to 1,043, and the Nasdaq (NASD) lost 3 points to 2,081.
The NYSE traded 1.3 billion shares with advancers ahead of decliners by 8-to-7. On the Nasdaq, decliners were ahead by 3-to-2 and volume totaled 660 million shares.
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For the week, the Dow gained 1.7%, the S&P 500 rose 2.6%, and the Nasdaq was up 3.1%.
October crude oil fell $2.65 to $69.29 a barrel and the Energy Select Sector SPDR (XLE) gained 21 cents to $53.60.
December gold rose $9.60 to $1,006.40 an ounce, and the PHLX Gold/Silver Index (XAU) gained $2.01 to $169.08.
What the Markets Are Saying
Using the quote from Admiral Farragut — “Damn the torpedoes, full steam ahead!” — the noted Standard and Poor’s technician, Mark Arbeter, has come around to my position regarding the market’s current advance.
He went on to say, “Our belief here is that, while we wait for that proverbial correction that only appears in our dreams, the market eventually forces the masses into stocks very quickly, as people throw in the towel, and we see a melt-up in stock prices.”
“We think the potential for a large move higher is real, based on the chart patterns of the major indices going to early 2008,” he continued. “For the S&P 500, we think there is basically an absence of any chart resistance between current prices and the 1,200 to 1,257 region.”
Thank you, Mark. Maybe I couldn’t have said it any better than that, but the fact is, for the past three weeks, I have been saying almost exactly that.
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On Aug. 31, I said, “Technically speaking, the most dominate feature of both the Dow and the S&P charts is the resistance line drawn from the May to June to August highs. Both indices have been hugging the line by posting new intraday highs almost daily. This sort of action is reminiscent of the April-December 2003 resistance line, which finally gave way with a mighty rally that ran the Dow for another 500 points from 10,000.”
And, most recently, on Sept. 11, I said, “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.”
Well, it’s nice to be supported by S&P, but I should also emphasize that it hasn’t happened yet.
As I said Friday, the possibility of major breakout of explosive significance is very real. With our longs in place we recognize the opportunity, but also know that the market doesn’t always accommodate our every prediction. While we would be delighted by a breakout, a pullback would give us another opportunity to buy our favorite equities — and this time it would be in the transportation sector.
Today’s Trading Landscape
Earnings to be reported include: OMNOVA Solutions (OMN) and Pall Corp. (PLL).
There are no significant economic reports due today.
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