Stocks opened lower again on developments in the SEC/Goldman fraud case and its negative implications on the financial group. But the stock market and Goldman’s (GS) stock rallied when it was revealed that the SEC’s case may be found to be not as strong as first indicated. The basis of that reasoning is that the vote by the SEC panel bringing the charges was a close 3-to-2 and along party lines, making it look like a “political witch-hunt” as one trader put it.
Financial stocks rallied sharply in the last hour of trading, buoyed by both the Goldman news and earnings from Citigroup (C). Citigroup jumped 7% following better-than-expected earnings, its strongest result in three years. The big bank posted a $4.4 billion Q1 profit that was more than double that of last year. Several weeks ago, the government announced that it would be selling its bailout-related holdings in Citigroup, but that announcement has had little impact on the price of the stock.
All was not roses in technology land as Palm fell 12% after Morgan Keegan cut its rating on the stock to “underperform” from “market perform.” That cut had a broad negative impact on the Nasdaq, which has a heavy mix of technology issues.
At the close, the Dow Jones Industrial Average gained 73 points to 11,092, the S&P 500 rose 5 points to 1,198, and the Nasdaq fell one point to close at 2,480.
The NYSE traded just under 1.3 billion shares with decliners ahead of advancers by 3-to-2. Nasdaq crossed 595 million shares and decliners exceeded advancers by 8-to-5.
Crude oil for May delivery fell $2.32 to $80.92 a barrel, and the Amex Energy SPDR (XLE) rose 8 cents to $59.38. June gold fell $3.00 to $1,133.90 an ounce on concerns about the charges against Goldman Sachs. The PHLX Gold/Silver Index (XAU) lost 20 cents and closed at $168.47.
What the Markets Are Saying
Last week’s poor showing, despite earnings gains from some of the Street’s top companies, is not the stuff of strong markets. And neither was Friday’s reaction to the Goldman Sachs news and the ash cloud from Iceland that closed Europe’s airports.
But yesterday, the market responded to a break in both situations — the possibly weak case against Goldman and news that several countries have tested flights to see if airline schedules could resume. Neither of these items should have much direct impact on the markets unless the airport closures extend into next week, a development like that could have a major impact on Europe’s recovery. But the focus on news as a catalyst is not good, and lack of a positive response to good earnings is even worse.
As for the sentiment indicators: They are grossly overbought. The American Association of Individual Investors (AAII] numbers now show bulls at 48.48% and bears at 29.70%. The similar reading in late December led to a sell-off in January.
The CBOE equity-only put/call (P/C) ratio was at 0.37 on Thursday and 0.32 on Wednesday. These are the lowest readings since 2000 and indicate that almost 76% of the total equity options volume is equity-only call volume — a dangerous figure since it represents very high optimism on the part of public traders. And bearish sentiment on the Investor’s Intelligence poll of newsletter writers has dropped to 18.9%, which is close to the 15.9% reading in mid-January, again just before the correction.
And so with internal and sentiment indicators telling us that the market is now dangerously overbought and the “Sell in May and Go Away” strategy has triggered a sell, it is time to go to cash on all rallies. It doesn’t get much better than this, and so it will most likely get worse.
Today’s Trading Landscape
Earnings to be reported before the opening include: A.O. Smith, AK Steel, Amphenol, Astec Industries, Bank of NY, Biogen Idec, Brinker, Coach, Coca-Cola, Delta Air Lines, Eaton, Evercore, Forest Labs, Goldman Sachs, Harley-Davidson, Illinois Tool, Jefferies Group, Johnson & Johnson, Journal Communications, LaBranche, Marshall & Ilsley, New Oriental Education & Technology, Northern Trust, Novartis AG, Omnicom, Orbital Sciences, PACCAR, Parker-Hannifin, Regions Financial, Snap-On, State Street, Supervalu, TD Ameritrade, UnitedHealth, US Bancorp, USG Corp, Weatherford, Wolverine.
After the close: Altera, Apple, Badger Meter, Chemed, Conceptus, Cree, Edwards Lifesciences, Fulton Financial, Gilead Sciences, Hancock Holding, Home Bancshares, IberiaBank, Infinera, Juniper Networks, Manhattan Assoc, Marten Transport, Nabors Industries, NuVasive, Oriental Financial Group, Plexus, Rush Enterprises, Seagate Technology, South Financial Group, Stryker, Synovus, Tempur-Pedic, Total System, Tupperware, Vascular Solutions, VMware, Waste Connections, Yahoo!
Economic reports due: ICSC-Goldman Store Sales and Redbook.
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