Volume was higher than average on Friday, but most of that had to do with an evening-up process due to the year’s last “quadruple-witching hour.” Technology and financial stocks led the modest late-session rally with the tech-heavy Nasdaq (NASD) the leader of the major indices.
The Nasdaq rose 1.5% with Research In Motion (RIMM) and Oracle (ORCL) leading the pack. RIMM gained 10.3 % and ORCL was up 6.4%; both gained as a result of their earnings exceeding analysts’ earnings forecasts.
The usual pattern of U.S. dollar up/stocks down reasserted itself with the dollar strong and stocks up at around noon. But the dollar was unable to sustain the move higher and fell late in the day, giving stocks enough time to overcome the losses and close modestly higher.
At the close, the Dow Jones Industrial Average (DJI) was up 21 points to 10,329, the S&P 500 (SPX) gained 6 points to 1,102, and the Nasdaq rose 32 points to 2,212.
The NYSE traded 3.2 billion shares with advancers leading decliners by 3-to-2. The Nasdaq traded 1.3 billion shares, and advancers were ahead by almost 3-to-1.
On Friday, January crude oil rose 71 cents to $73.36, and the Energy Select Sector SPDR (XLE) fell a cent to $56.15.
February gold rose $4.10 to settle at $1,111.50 an ounce, and the PHLX Gold/Silver Sector Index (XAU) gained $2.51, closing at $167.04, and executing a Collins-Bollinger Reversal (CBR) buy signal (our proprietary indicator) off of its 200-day moving average. In addition to the reversal, the XAU is also within a hairsbreadth of a buy signal on the stochastic. The Moving Average Convergence/Divergence (MACD) on the XAU is very oversold, and so the index looks like it’s due for a 50% bounce up to around $180.
What the Markets Are Saying
Even though the broad market is stuck in a very narrow trading box, or rectangle, there are two encouraging technical events that usually precede a general market move higher, and they are the recent highs made by the companions of the Dow Jones Industrial Average. Those other two most-watched Dow indices, the Dow Jones Transportation Average (DJT) and the Dow Jones Utility Average (DJU), have both broken out.
The Transportation Average has the best record of being directly tied to the economy. The “transports” will often make new highs well in advance of the “industrials,” and are sometimes referred to as a “leading indicator” because of that.
But the “utilities” have also made new highs, and although they do directly benefit from a strong economy, they are most often thought of as a “defensive group.” As applied to the utilities, that label is probably due to their generally higher yield than industrials and also that they don’t have a history of violent moves in either direction due to the fact that they are a heavily regulated industry.
And it’s because the utilities are usually less volatile than the industrials that their breakout is so interesting. It usually takes a lot of volume to move them higher since most of them have a higher-than-average number of shares outstanding. Therefore, a breakout by this group usually means that there has been some institutional money chasing them.
In summary, Friday’s quadruple witching expiration should be ignored because of the many non-recurring events surrounding trading. The stock market is still in a bull market for both the long and intermediate trends. Only the short-term is in doubt, but we have two solid indices, companions of the Industrials, that are telling us that everything is OK, and that their bigger cousin will catch the next train up.
Today’s Trading Landscape
Earnings to be reported include: ConAgra Foods (CAG) and Jabil Circuit (JBL).
There are no significant economic reports due.
Cheap Stocks Under $10 — Plus Your Next Doubler
The best cheap stocks are undervalued companies priced at less than $10 per share — with great upside potential. Learn the four simple steps to separating the bargains from the busts AND the names of three cheap stocks to buy now. Download your FREE copy here.
