There was little in the way of significant news on Monday to impact the market, but what there was cut the Dow Jones Industrial Average’s (DJI) recent losing streak to three days. The index registered a triple-digit gain and also broke its high of Nov. 17, putting to rest the thought that a major reversal occurred on that day.
The main cause of the buying was another day of weakness for the U.S. dollar. And this time it cracked the psychologically important level of $1.50 per euro. While some European countries have flirted with the idea of raising interest rates, that thought is apparently not gaining ground at the Federal Reserve.
One of the system’s key banks for policy is the St. Louis Federal Reserve Bank, and its president, James Bullard, said in an interview this weekend that the Fed should continue buying mortgage-backed securities past the first quarter of 2010 — a date that had previously been chosen as a target when rates might be raised.
Another positive in the pre-holiday mood was the National Association of Realtors’ report that home resales increased by 10.1% in October. This was in stark contrast to a survey done by Dow Jones Newswires that indicated that an increase of 2.3% was expected.
Several stocks were in focus with outstanding gains. LDK Solar (LDK) popped 6.9% following news that the Chinese maker of solar wafers and modules registered a big gain for Q3 after three consecutive losses. And Deere & Co. (DE) gained 2% on a rating increase by Morgan Stanley (MS).
All 10 of the major S&P sectors made advances yesterday, with the telecom group leading the pack with a gain of 2.6%.
The Dow rose 133 points to 10,451, the S&P 500 (SPX) gained 15 points to 1,106, and the Nasdaq (NASD) rose 30 points to 2,176.
Pre-holiday volume was again light with just 980 million shares trading on the NYSE. Advancers on the Big Board led decliners by a ratio of almost 4-to-1. On the Nasdaq, 591 million shares were exchanged with advancers ahead by 9-to-4.
The weakness in the U.S. dollar again pushed commodities higher. Crude oil for January delivery gained 11 cents to $77.56 a barrel, and the Energy Select Sector SPDR (XLE) closed at $57.33.
December gold rose $17.90 to close at $1,164.70 an ounce, as the flight from the dollar continued to nudge precious metals higher. The PHLX Gold/Silver Sector Index (XAU) closed at $186.99, up $2.71.
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What the Markets Are Saying
Yesterday’s new high in the Dow, along with the successful test last week of the S&P 500’s near-term support, gives new life to a market that has recently lagged. And the theory that the institutions (principally the big fund managers) are making small purchases in the blue chips at the expense of small caps was reinforced yesterday with the new high in the Dow.
While the Dow was making new highs, the Russell 2000 (RUT) is still trading below its 50-day moving average and on a sell signal generated on Nov. 5, when the 20-day moving average crossed through the 50-day moving average.
And the same is true of the S&P 600 Small Cap Index (SML), which despite a 6-point gain yesterday, is still trading below its 50-day moving average.
Both of these smaller-cap indices are on sell signals but could form a sideways pattern if the lows of last month hold. The Russell’s low is 553, and the low for the S&P 600 is 294.
But 40 points or so on the Russell is more than 6% risk for the longs, and it could even be more if the 555 area doesn’t hold. The next area of support for the Russell is its 200-day moving average at 520. As for the “600,” a breakdown at 294 could result in a fall to its 200-day moving average at 274.
For now, big caps are “in,” and small caps are “out.” But, before the end of the year, a position in small caps could be the place to make money in 2010.
Today’s Trading Landscape
Earnings to be reported before the open include: Allied Healthcare, American Eagle Outfitters, American Woodmark Corp., Barnes & Noble, Brocade, Brown Shoe Co., Cracker Barrel, Daktronics, Dollar Tree Stores, Double Hull Tankers, DSW, Eaton Vance, Fred’s, Genesco, GigaMedia, Hillenbrand, HJ Heinz Co., Hormel Foods Corp., Medtronic, Warner Music Group and Zale Corp.
Earnings to be reported after the close: Blue Coat Systems, China Finance Online Co., Coldwater Creek, J. Crew, Netezza Corp., Steak n Shake Co. and TiVo.
Economic reports due: ICSC-Goldman Sachs store sales, GDP (the consensus expects 2.8%), corporate profits, Redbook, S&P/Case-Shiller Home Price Index, consumer confidence (the consensus expects 47), FHFA House Price Index, State Street Investor Confidence Index and FOMC minutes.
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