Even though stocks were flat during most of Friday, a late-day rally popped the Dow Jones Industrial Average (DJI) to slightly over the 11,000 level. And even though it didn’t hold through the close, the bulls were invigorated by the performance, which closed the important index at its highest level since September 2008.
But despite the strong performance of U.S. stocks, rumors still persisted that Greece would default on the new bond issues, and those rumors picked up when Fitch downgraded Greece’s debt rating to triple B-minus. But the notion of default was at least temporarily put to rest when Reuters reported that euro zone officials had reached a deal on how to provide emergency loans to Greece if needed.
The U.S. dollar weakened in the final hour of trading just as U.S. stocks rallied. But volume was again very light, and many questioned the commitment of public investors. With the Q1 earnings season starting today with the report of Alcoa (AA), which was off 3.23% on Friday, investors seemed to put buying aside until those first earnings are in the bag.
At the close, the Dow rose 70 points to 10,997, the S&P 500 (SPX) gained 8 points to 1,194, and the Nasdaq (NASD) gained 17 points to 2,454.
The NYSE traded 970 million shares with advancers over decliners by slightly more than 2-to-1. On the Nasdaq, volume totaled 546 million shares with advancers ahead by 7-to-6.
May crude oil lost 55 cents, closing at $84.92. It was the third straight lower close for crude and reflects the concerns over a lag in a global recovery. The Energy Select Sector SPDR (XLE) rose 63 cents to $59.83.
Gold (June contract) rose $9 to $1,161.90 an ounce as money again fled from the European debt markets to a safer refuge. The PHLX Gold/Silver Sector Index (XAU) gained 1.05 points to close at 177.
What the Markets Are Saying
The “wall of worry” continues to grow, but with it stock prices continue to inch higher. Friday’s action was typical of the past six weeks with NYSE volume under a billion shares, but with twice as many buyers as sellers.
Many services have been reporting that institutional buying has been the cause of the recent move higher. Most point out that the public is still pretty much out of the market having been burned twice in the past 10 years. But Investors Intelligence said the following, “Monday (April 5) ended with all major indexes at new 52-week highs, after gains near 1% and better than 3-to-1 advance/decline breadth. However, trading volume contracted, a signal that large institutions were not embracing the new highs.”
So the reason for the very light volume, despite the almost daily new highs, is perplexing to most market technicians. I’ve commented on it almost daily. But it should be obvious by now that the reason for the low volume is not so important as the fact that stocks continue to rise higher despite the general opinion that the market is overbought. This is not an easy pill for most investors to swallow, so many have not participated in the last several hundred Dow points.
But when stocks break to new highs, as they did on March 17, and continue higher, momentum players will almost always jump on board despite the high risk. So it has been those traders who now profit almost daily from quick turnaround trades.
However, others like S&P’s more conservative analyst Mark Arbeter, decided long ago to stand aside, and he is quoted from S&P’s Friday morning Technical Market Insight as saying, “Risk of pullback remains high, and we would not chase the market here.”
For traders there is no other course than to be long stocks with the understanding that the market is very overbought and that protective stop-loss orders should be used to limit risk. These traders will use highly leveraged investments like options and double and triple leveraged ETFs to maximize their potential gains. Other more conservative investors will most likely choose to stand aside until a better opportunity presents itself. Neither is wrong; they just have different investment objectives.
Today’s Trading Landscape
Earnings to be reported after the close: Alcoa.
Economic report due: Treasury budget (the consensus expects -$62 billion).
Related Articles:
- Kick Off Earnings Season With This Retail Trade
- Top Steal Stock to Buy Now
- The Easiest Way to Profit From Mispriced Options
Top 5 Stocks for the Recovery
With rising earnings, a strong balance sheet and a powerful new product line (all despite the recession!) these five stocks are set to outperform the market in the short-term. Get their names here.
