Monday the stock market had a sideways day following Friday’s news-driven rally due to lower-than-expected unemployment. That news, like other recent favorable reports, was almost forgotten yesterday as both buyers and sellers were hard to find, and the NYSE reported the second-lowest volume of the year.
Today is the one-year anniversary of the bear market bottom. Since then the Dow Jones Industrial Average (DJI) is up about 61%, the S&P (SPX) is up 68%, and the Nasdaq (NASD) is up 83%. But with limited economic news and Q4 earnings now history, traders opined that there seems little that will move stocks to a convincing break of the January highs.
But there was some positive news for individual stocks. Cisco Systems (CSCO) rallied on an expectation that on Thursday the company will announce ways to help companies boost their Internet speeds. The stock rose 3.7%, and this drove Sprint Nextel (S) up 3.7%, and Verizon (VZ) and AT&T (T) to gains of more than 1%.
However, Hewlett-Packard (HPQ) issued a downward earnings revision, and the stock fell 30 cents to $51.73.
Research In Motion (RIMM) was the Nasdaq’s big winner, up $3.89 following an upgrade by analysts. The Nasdaq gained fractionally as a result of the positive impact of this and the CSCO announcement on technology stocks.
Overall, it was a very slow day with the Dow off 14 points to 10,553, the S&P 500 breakeven at 1,139, and the Nasdaq up 6 points to 2,332.
The NYSE traded 907 million shares with advancers over decliners by 11-to-8. The Nasdaq crossed 599 million shares with advancers ahead by 7-to-6.
April crude oil gained 37 cents to an eight-week high and closed at $81.87 a barrel. The Energy Select Sector SPDR (XLE) fell 9 cents to $58.06.
March Gold fell $11.20 to $1,123.60 on profit-taking, and the PHLX Gold/Silver Sector Index (XAU) dropped 1.6 points to 169.21.
What the Markets Are Saying
Yesterday, I noted that mutual funds have only a 3.65% cash position following a period of “burning through cash at the fastest record in 18 years.” It is so important that investors consider the implications of this that I am repeating it again.
It is like taking your car on a 500-mile trip and starting at a maximum speed of 130 mph. The car is moving fast, but gobbling up gasoline at a rate of 10 miles per gallon (MPG) while it was designed to travel at 60 mph and deliver 25 mpg. The result is that you will run out of gas before you reach your destination.
But some would say, “That’s no problem. There are plenty of gas stations along the way.” For investors that means pools of cash. Under normal circumstances that would be true, but now the pumps are empty.
As stated above, in just one year the Dow is up about 61%, the S&P is up 68%, and the Nasdaq is up 83%. The fuel has been spent and cash is below 4%. In other words, the stations are closed.
Other conditions to consider: There are few economic and earnings reports this week to boost the market, the European financial crisis with Greece has not been solved, speculative stocks on Nasdaq and Russell 2000 (RUT) are grossly overbought, and the week before the quarter’s triple-witching expiration (next week) tends to be negative.
The recurring pattern of low volume, low volatility seems likely to result in a failure to make a significant move above the highs of January.
I’ve been noting the possibility of a reversal for several weeks, but the spike up Friday resulting from the better-than-expected unemployment report could have been a short-term buying climax.
This all adds up to a strong possibility of a reversal occurring sometime this week.
If a minor reversal takes prices back to 50% of the run from the January low of Dow 9,823 (Feb. 5) to the high of 10,587 (Friday), the downside target is about 10,200. But note that it is possible that the market could make a deeper correction, and that could lead to a longer period of consolidation caused by a lack of buying power, i.e., cash — the fuel of the market.
Today’s Trading Landscape
Earnings to be reported before the opening include: Bronco Drilling, Caliper Life Sciences, China Real Estate Info, Compass Group, Dick’s Sporting Goods, E-House China, Exelixis, Gulfport Energy, Kroger, LMI Aerospace, Northgate Minerals, Stage Stores, Superior Well Services and Tasty Baking.
Earnings to be reported after the close include: A123 Systems, AeroVironment, Analogic, Bidz.com, Boston Beer Co., Collective Brands, Dexcom, ExlService, Flow, ICF International, J. Crew, Navistar, Salix Pharmaceuticals, Verisk Analytics and Ziprealty.
Economic reports due: ICSC-Goldman Sachs store sales and Redbook.
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