Financial stocks led a modest rally yesterday that took the broad markets to new highs. And even though the sector had some of its gains shaved late in the day, its influence led the S&P 500 higher for the 13th time in 15 sessions, making this December “Santa Claus rally” one of the most impressive in recent memory.
In corporate news, the surge of bank stocks came following the purchase of Chrysler Financial by Toronto-Dominion Bank (NYSE: TD). Last week, the Bank of Montreal (NYSE: BMO) agreed to buy another U.S. bank for $4.1 billion, and Berkshire Hills Bancorp, Inc. (NASDAQ: BHLB) agreed to buy Legacy Bancorp Inc. (NASDAQ: LEGC). Regional banks reacted with First Horizon National Corporation (NYSE: FHN) jumping 4.2%, SunTrust Banks, Inc. (NYSE: STI) up 3.6%, Fifth Third Bancorp (NASDAQ: FITB) up 2.9%, and BB&T Corporation (NYSE: BBT) gaining 1.18%.
In other news, Walgreen Company (NYSE: WAG) rose 5.48% on better-than-expected earnings, which helped it reach a new 52-week high.
In economic news, Gross Domestic Product (GDP), the value of all goods and services produced in the United States, rose at a seasonally and inflation-adjusted annual rate of 2.6% in July through September. Most economists had been predicting a rise of 2.9%, but the difference appeared to have little impact on stocks. And the price of existing homes rose by 5.6% for the first increase since August.
The 10-year Treasury note fell following the last bond purchase of the week to yield 3.346% versus 3.3322% on Tuesday. The euro traded at $1.3094, down from $1.3096 on Tuesday.
At the close, the Dow Jones Industrial Average rose 26 points to 11,559, the S&P 500 gained 4 points at 1,259, and the Nasdaq gained 4 points to 2,671. Volume on the NYSE increased to 1.2 billion shares with advancers ahead of decliners by 1.6-to-1. The Nasdaq crossed 379 million shares with advancers ahead by 1.2-to-1.
Crude oil for February delivery rose 66 cents to $90.48 a barrel due to rising demand in the United States and China. The Energy Select Sector SPDR (NYSE: XLE) gained 23 cents at $67.22. February gold fell $1.40 to $1,387.40 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) lost 1.65 points, closing at $219.15.
What the Markets Are Saying
Volatility is the relative rate at which the price of a security moves up and down. So when I speak of volatility I’m referring to the daily fluctuation of a stock or index and not the CBOE Volatility Index (VIX), which we have covered in past issues.
Yesterday’s trading was anything but volatile with markets holding within a very narrow range but chiefly trending higher. There was one bounce of 26 points around noon that occurred in about three minutes, and it took an hour for prices to fall back to the daily uptrend that was maintained until the close. Both Tuesday and Wednesday’s trading patterns were a far cry from the bouncy markets of the past two weeks when the last hour often covered 100 points up or down before the close. Even Monday was more volatile with the Dow falling over 60 points in the first hour, and then trading back up to its highs before dropping and taking back half of the gains in the last two hours of trading.
Our new readers and those who may be new to trading the 2x and 3x leveraged ETFs may not be aware of how sudden a shift can occur from the placid waters of yesterday to the emergence of the roiling seas that will eventually arrive when the big market movers hit the trading floors again. Day traders can protect with stops and smaller positions when this violence begins, but it’s a good practice to incorporate these measures into your game plan now and avoid the pain later.
For now, the markets continue to plod higher. But the surprise is that after pounding away for weeks against the stubborn overhead resistance at the S&P 500’s 1,174 to 1,210 zone, stocks are now just coasting along with very little resistance. Technicians, this one included, are interpreting this as a very bullish condition since a lack of sellers, combined with the new money that arrives in January, means that the initial objective of Dow 11,785, S&P 1,278, and Nasdaq 2,700 may be just weeks away. However, that’s just the beginning; after the Christmas holiday, I’ll give targets for each index for 2011, and I think you will be surprised.
For an ETF that looks to make a big move higher in the new year, see the Trade of the Day.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
