U.S. stocks opened mixed yesterday, amid concerns that the economic situation in Greece is getting out of control. But better-than-expected home sales data renewed hopes of a stronger economic recovery, and the Dow Jones Industrial Average (DJI) posted a triple-digit gain, while the broad-based S&P 500 (SPX) broke last week’s high and technically reconfirmed the uptrend.
Industrial stocks (+1.1%) were strong with Dow component Caterpillar (CAT) leading the index by gaining more than 4%, and even former laggards like General Electric (GE) (+1.45%) rose to a 15-month high.
The S&P 500 gained 0.7%, and the Nasdaq (NASD) rose 0.8% as broad buying in technology, especially semiconductor stocks (+2.3%), drove the Nasdaq to another 12-month high.
A recent run of favorable economic data that indicates a turn for the economy seems to be the most persuasive factor fueling the recent buying of stocks. The better-than-expected home re-sales for February, along with a pickup in March manufacturing in the Fed’s central Atlantic region were the cause of Tuesday’s late-day surge of buying.
Google (GOOG) fell 1.5% after the company redirected its China business to a Hong Kong search site that is not censoring. The move followed a statement from Google several months ago that it would stop obeying Chinese censorship rules.
The U.S. dollar gained against both the yen and the euro. And Treasury prices fell slightly.
At the close, the Dow gained 103 points to 10,889, the S&P 500 rose 8 points to 1,174, and the Nasdaq was up 20 points to 2,415.
The NYSE traded 95 million shares with advancers ahead of decliners by 3-to-1. On the Nasdaq, advancers led by 2-to-1 on volume of 615 million shares.
May crude oil rose 31 cents to $81.91 a barrel on the report of better-than-expected home sales. The Energy Select Sector SPDR (XLE) gained 22 cents to $57.35.
Gold for April delivery gained $4.20 to $1,103.70 an ounce. The PHLX Gold/Silver Sector Index (XAU) gained 53 cents, closing at $167.02, and holding above its 50-day moving average at $163.30 and 200-day moving average at $161.59.
What the Markets Are Saying
Stocks hit new highs again yesterday, and did so on the now familiar pattern of broad buying with very low volume. This is not the textbook model following a break to higher prices, but whether it is classic or unconventional, and whether it fits the view of technical and fundamental analysts, is not the issue. The only important statistic is the closing price, and that price has been higher almost every day for the past two weeks.
As noted last week, an explanation of this phenomenon could be that the public, less traders, is generally absent from the market. Institutions with very low reserves but a need to be fully invested are the sole actors in the play, so the spotlight is always on them. Thus, very low volume with almost all of it on the buy side is moving prices higher.
In such a strange trading environment, it is best to rely less on our indicators, which for weeks have been telling us that the market is overbought, and go solely with chart analysis. By doing this, we rely on internal momentum to continue to drive stocks higher.
Point-and-figure analysts are best at this since they are trend followers and will buy breakouts even if the stock is very “overbought.”
One of the greatest P&F analysts was the late Earl Blumenthal, whose favorite expression was, “A stock that makes new highs will continue to make new highs.” Earl would love this market.
So, if you want to participate in the gains in this market, until further notice you should buy stocks that are making new highs until they stop making new highs. Yes, there is risk in this method of investment, but unless there is a dramatic change in market psychology, stocks will more than likely make new highs again today.
Today’s Trading Landscape
Earnings to be reported before the opening include: Commercial Metals, General Mills, Lennar Corp. and Robbins & Myers.
Earnings to be reported after the close include: CKE Restaurants, Paychex and Red Hat.
Economic reports due: MBA purchase applications, durable goods orders (the consensus expects 1%), new home sales (the consensus expects 315,000), and the EIA petroleum status report.
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