Yesterday, stocks continued where they left off last week, with another triple-digit Dow gain — the second in three days. The Dow Jones Industrial Average (DJI) rose 2% with 29 of the 30 stocks in the index gaining as investors focused on the Fed’s assurance of a continuing easy-money policy.
The U.S. dollar fell again following Treasury Secretary Geithner’s assertion that economic stimulus should not yet be withdrawn. Along with a weaker dollar, commodities posted another gain. Crude oil jumped through $80 a barrel, and gold prices hit another all-time high.
All of the S&P 500’s (SPX) sectors traded higher as the index rose 2.2%. But the leader was the financial sector, which rose 3.6%, reacting to the stability of banking profits under the Fed’s easy-money policy.
The only loser in the Dow was Kraft Foods (KFT) following a rejection of its bid to take over Cadbury PLC (CBY). The candy-maker said that Kraft’s bid didn’t “come remotely close to reflecting the true value of our company.”
Retail stocks also did well yesterday. RadioShack (RSH) gained more than 14% after it said that it will carry Apple’s (AAPL) iPhone in a limited number of stores. And McDonald’s (MCD) rose after a report showing that its global same-store sales climbed 3.3% in October.
At the close, the Dow had gained 204 points to 10,227, the S&P 500 gained 24 points to 1,093, and the Nasdaq gained 42 points to 2,154.
The NYSE traded 1.2 billion shares with advancers over decliners by 5-to-1. And the Nasdaq traded 638 million shares with advancers ahead by 9-to-4.
December crude oil gained $2 to $79.43 a barrel over concerns that Gulf Coast refineries and drilling platforms could be in danger from tropical storm Ida, as well as the falling dollar. The Energy Select Sector SPDR (XLE) rose $1.09 to $58.17.
Gold for December delivery climbed to $1,101.40 an ounce, up $5.70, and the PHLX Gold/Silver Index (XAU) rose $7.01, closing at $180.85. According to MarketWatch, gold gained again yesterday in the face of a weak dollar and expectations of purchases of gold as a reserve unit.
What the Markets Are Saying
With virtually everything except the lowly dollar defying the laws of gravity yesterday, the bears had nowhere to hide, and my guess is that much of the activity in the last hour was due to a rush of short covering. With all of S&P’s sectors showing a gain, that was probably their only sensible course of action.
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Even with the broad rally of the past five days, our internal indicators are not overbought. And the Moving Average Convergence/Divergence (MACD) ended yesterday with a fresh new buy signal on the Dow, just as the senior index jumped to a new high for the year.
But even though the major indices have been chugging along like the “Little Engine That Could,” they will shortly arrive at some overhead that accumulated back in July to September of 2008. That resistance begins at about Dow 10,365 and runs to 11,800 or so.
And the bullish resistance line, which marks the top of the Dow’s bull channel, also comes into play at around 10,400.
The S&P 500’s upper channel is also fast approaching along with my intermediate target for the S&P at 1,120, set back in June.
For traders, this means that another day or two of broad advances led by gold and the financials may provide for a good exit point, with the expectation that they might get another shot at buying on a pullback to below the 50-day moving average at 1,056 or even the support line at 1,050.
But for long-term investors, this recent breakout is a powerful reminder that the best course of action for them is to hang onto this bull. He may buck and break, and scare you to death, but the indications are strong that he has not yet had a midlife crisis.
Today’s Trading Landscape
Earnings to be reported include: Air Transport Services Group, American Apparel, Anthracite Capital, Beazer Homes USA, Bob Evans Farms, CASCAL N.V., CGGVeritas, China Digital TV Holding Co. Ltd., CPI Aerostructures, Emdeon, FirstCity Financial, Fossil, Harbin Electric, HearUsa, Henan Zhongpin Food Share Co. Ltd., Hewitt Associates, Intertape Polymer Group, INX, JA Solar Holdings Co. Ltd., Maiden Holdings Ltd, Maidenform Brands, MI Developments, Pan American Silver, Paragon Shipping, Qiagen N.V., Ralcorp Holdings, Randgold Resources Ltd., RHI Entertainment, Shengda Tech, Supreme Industries, Systemax, Tandy Brands, The Hackett Group, Trailer Bridge, Tyco International, Ultrapetrol Bahamas Ltd. and Weight Watchers International.
Economic reports due: ICSC-Goldman Sachs store sales and Redbook.
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