Early yesterday, it seemed that most of the news was bad. First, the government revised its Q3 GDP numbers downward. Then the U.S. dollar rallied, but later stocks followed with a broad-based rally too. Huh? A change in pattern with the dollar up and stocks up too?
Yes, that seems to be the case. However, there was a piece of news so good that it alone could have influenced investors to take another looks at stocks. Existing home sales figures for November increased at a stronger-than-expected 7.4%, which raised the annualized rate to 6.54 million units versus an expected rate of 6.25 million units.
Just after the home sales figures were announced, the market rallied and the S&P 500 (SPX) set a new 52-week high. And the dollar’s rally picked up steam after Moody’s said that they were cutting Greece’s credit rating, which was much like the announcement made by S&P earlier.
At the close, the Dow Jones Industrial Average (DJI) rose 51 points to 10,465, the S&P 500 rose 15 points to 1,118, and the Nasdaq (NASD) gained 15 points to close at 2,253.
Volume on the Big Board totaled 955 million shares with advancers over decliners by about 3-to-2. The Nasdaq traded 488 million shares, and it, too, had advancers ahead by 3-to-2.
Crude oil for February delivery closed down 68 cents to $74.40 on very light volume. The Energy Select Sector SPDR (XLE) rose 27 cents to $57.09.
February gold fell $9.30 to settle at $1,086.70. And the PHLX Gold/Silver Sector Index (XAU) gained 52 cents to $165.95. The XAU has been holding at its bull market trendline for days, with internal indicators all grossly oversold. The next move for gold will probably be up.
What the Markets Are Saying
Monday’s breakout by the Nasdaq was viewed by some as “false” since the breakout was accompanied by such low volume. But volume was even lower yesterday, with just 488 million shares traded on Nasdaq. And, despite that, the index rose again, confirming that that even higher prices are in order.
The most important technical event of the last six weeks occurred yesterday, and that was the new closing high of the S&P 500. After weeks of pounding into the overhead at around 1,116, the index finally cleared the hurdle of a five-point top and the internal indicator, Moving Average Convergence/Divergence (MACD), gave a strong buy signal — and that too confirmed Nasdaq’s breakout.
And so now the final key to springing a major, broad-based market rally is the DJIA. It has been tracking closely behind the S&P 500 and for months has been lagging the other major indices and still is. But yesterday there was a change in the Dow, too. Even though it has yet to break from its range-bound box of 10,235 to 10,500, momentum has turned positive for the first time since late November, the Relative Strength Index (RSI) turned up, and the slow stochastic issued a buy signal.
The pressure for a breakout is building, so now is the time for both traders and longer-term investors to jump aboard a polar express. Your ticket is punched. Just choose which train to board — they are all headed north.
If you want the quickest ride with many exciting ups and downs, you’ll want to own Nasdaq. But if you’re a longer-term investor, the ETF representing the S&P 500 will do just fine.
But don’t stand at the station since the trains are leaving now and the ticket says “The Santa Rally Special.”
Today’s Trading Landscape
Earnings to be reported: American Greetings Corp. (AM) and Orleans Homebuilders (OHB).
Economic reports due: MBA purchase applications, personal income and outlays (the consensus expects 0.5% for personal income and 0.65% for spending), consumer sentiment (the consensus expects 73.5), new home sales (the consensus expects 440,000), and EIA Petroleum Status Report.
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