Just one day after financial stocks were hammered, driving the Dow to its worst day in two months, a recovery in the financials helped the broad market recover most of Tuesday’s losses. Of the Dow’s 30 stocks, 27 advanced yesterday, and all sectors of the S&P 500 showed gains.
But Bank of America Corporation (NYSE: BAC), which was at the crux of Monday’s foreclosure crisis, fell a nickel to $11.75. Goldman Sachs Group, Inc. (NYSE: GS) rose 1.8% after beating quarterly estimates, and Wells Fargo & Company (NYSE: WFC) gained 4.3% after posting its best-ever quarterly earnings.
Strong earnings from airlines helped the sector become a leader for the first time in many months. A jump in the earnings of AMR Corporation (NYSE: AMR), US Airways Group, Inc. (NYSE: LCC) and Delta Air Lines, Inc. (NYSE: DAL) led to a 5.3% gain in the Amex Airline Index. And the Dow Jones Transportation Average gained 2.2%.
The Fed released its Beige Book, which is an assessment of the nation’s financial state by the 12 Fed districts. The report indicated that economic activity was rising but at a “modest pace.” The report covered the period of September to early October.
A strong day for the U.S. dollar was followed by a fall of 1.3% on Wednesday, as the euro jumped to just under $1.40. The benchmark 10-year Treasury note rose, pushing its yield down to 2.47%.
At the close, the Dow Jones Industrial Average was up 120 points at 11,108, the S&P 500 gained 12 points at 1,178, and the Nasdaq gained 20 points at 2,457. The NYSE traded 1.1 billion shares with advancers ahead of decliners by over 3-to-1. The Nasdaq traded 547 million shares with advancers ahead by over 2-to-1.
Crude oil for November delivery closed at $81.77 a barrel, up $2.28, as a government report showed a drop in total crude oil and fuel supplies. The Energy Select Sector SPDR (NYSE: XLE) gained 75 cents at $58.94. December Gold rose $8.20 to $1,344.20 an ounce mostly on the fall of the dollar. The PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 3.36 points to 198.79.
What the Markets Are Saying
Yesterday’s rebound in the major indices astounded some observers by the strength of the first two hours of trading as the Dow rose over 140 points. The across-the-board gains in not only the technology stocks, which usually lead a rebound, but airlines, heavy equipment, and some of the battered financials made for an impressive day.
But the rally only regained just over 70% of Tuesday’s losses and failed to reach the volume levels of the sell-off with just 1.1 billion shares yesterday compared to 1.3 billion on Tuesday. And Tuesday’s decline was “the second time that the S&P has failed to punch through the resistance at 1,185, which is just 10 points under its 200-week moving average” (Mark Ashbaugh, MarketWatch).
Ashbaugh also points out that with Tuesday’s 165-point Dow plunge, down volume was greater than up volume by 9-to-1 on the NYSE and just under 6-to-1 on Nasdaq. And these negative volume numbers are what technicians consider to be important indicators that a normal pullback could be about to occur.
The numbers alone don’t mean that the advance is over. But with the indicators still overpriced, downside volume much stronger than upside volume, and volatility increasing, the signs of a near-term top just can’t be ignored.
And with the market trading in an area that has repulsed other advances, longer-term investors will no doubt welcome a step back from the torrid pace of the days of September. In just weeks, many high-quality stocks with strong histories of dividend increases moved away from blue-chip buyers. But they will welcome a normal pullback that could enable them to have another chance to buy investment grade stocks.
For one blue chip to buy on a pullback, see the Trade of the Day.
Today’s Trading Landscape
Earnings to be reported before the opening include: 1-800-FLOWERS, Air Products, Alaska Air, Alexion Pharmaceuticals, AT&T, Baxter, BB&T Corp., Briggs & Stratton, Cash America, Caterpillar, Cirrus Logic, CNH Global, Cooper Industries, Cypress Semiconductor, Danaher, Diamond Offshore, Eli Lilly, Entergy, Fifth Third, First Niagara, FLIR Systems, Freeport -McMoRan, GATX, Gentex, Goodrich, Hershey Foods, Home Bancshares, Hubbell, Huntington Banc, InSteel Industries, Isilon Systems, ITT Educational, Janus Capital, Jetblue Airways, Kensey Nash, Laboratory Corp, Life Time Fitness, McDonald’s, Monro Muffler, MSC Industrial, Northern Trust, Nucor, NVR, Orbital Sciences, Patriot Coal, Penn National Gaming, Philip Morris International, PNC Bank, Pool, PPG Industries, Precision Castparts, Premiere Global Services, Reliance Steel, Reynolds American, Ryder System, Sigma-Aldrich, Sonoco Products, Southwest Air, StellarOne, SunTrust Banks, TCF Financial, Thomas & Betts, TradeStation, Travelers, Travelzoo, Umpqua Holdings, Union Pacific, United Continental, UPS, V.F. Corp, W.R. Grace, Wesco and Xerox.
Earnings to be reported after the close include: Acacia Research, Albemarle, Align Technology, Amazon.com, American Express, AmSurg, Assoc. Banc-Corp., AthenaHealth, Avid Technology, Baidu.com, BJ Restaurants, Bottomline Technologies, Bucyrus, Builders Firstsource, C.R. Bard, CA, Capital One, Cepheid, Cheesecake Factory, Chipotle Mexican Grill, Chubb, Citrix Systems, City National, CoBiz, Columbia Sportswear, Compuware, Cymer, Cytec, EastGroup, Elec For Imaging, Emulex, First Financial, Fortinet, Gardner Denver, Healthways, Informatica, Interactive Brokers, Ixia, Lattice Semiconductor, Leggett & Platt, Micrel, NCR Corp., NetScout Systems, People’s United Financial, PMC-Sierra, Polycom, QLogic, Rambus, Renaissance Learning, Riverbed Technology, Rocky Brands, RSC Holdings, SanDisk, Seacoast Banking, SonoSite, SVB Financial Group, Synaptics, VCA Antech and Wipro.
Economic reports due: jobless claims (the consensus expects 455,000), leading indicators (the consensus expects 0.3%), Philadelphia Fed Survey (the consensus expects 1), EIA natural gas report, Fed balance sheet and money supply.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
