On Thursday, the Dow Jones Industrial Average barely rose to a new two-year high, while the other major indices fell fractionally in a low-volume session with few highlights.
Commodity-related industries led the Dow with Alcoa Inc. (NYSE: AA), Chevron Corporation (NYSE: CVX) and Exxon Mobil Corporation (NYSE: XOM) topping the list of gainers. But financials held back further gains with Bank of America Corporation (NYSE: BAC) and The Travelers Companies, Inc. (NYSE: TRV) falling slightly after making gains earlier in the week.
In corporate news, several retail stores had big days. Jo-Ann Stores, Inc. (NYSE: JAS) jumped 32% following the news that they would be acquired by Green & Partners L.P. for $61 a share. And Bed Bath & Beyond Inc. (NASDAQ: BBBY) rose 5.1% on a 25% increase in fiscal Q3 earnings that beat analysts’ estimates by a wide margin and then raised expectations for the rest of the year.
In economic news, November durable goods orders fell by much more than anticipated, but much of that was due to a plunge of 53.1% in commercial airplane orders,while new orders for non-defense capital goods rose by 2.6%. The Reuters/University of Michigan consumer sentiment index’s final reading for December met expectations. However, U.S. consumer spending had a 0.4% increase in November, while new home sales rose 5.5%; both slightly missing economists’ expectations.
On Thursday, the 10-year Treasury note yield fell to 3.392% versus 3.342% on Wednesday. The euro rose to $1.3122 versus $1.3099 on Wednesday.
At Thursday’s close, the Dow rose 14 points to 11,573, the S&P 500 fell 2 points to 1,257, and the Nasdaq lost 6 points at 2,665. The NYSE traded 616 million shares with advancers and decliners even, while the Nasdaq crossed 291 million shares with decliners ahead by 1.25-to-1. For the week, the Dow rose 0.7%, the S&P 500 rose 1%, and the Nasdaq gained 0.9%.
Crude oil for February delivery closed at $91.51 a barrel, up $1.03, for a new two-year high. The Energy Select Sector SPDR (NYSE: XLE) closed at $67.41, up 19 cents. February gold fell $6.90 to $1,380.50 an ounce, and the PHLX Gold/Silver Sector Index (NASDAQ: XAU) rose 2.1 points to 221.26.
What the Markets Are Saying
Since it is unwise to draw conclusions from low-volume days in the holiday season, we should focus instead on the recent record of the first two weeks of a new year for clues as to whether markets move higher as a result of an influx of new cash. During the past 10 years, two have been in bear markets (2008 and 2009), and of the remaining eight, six have seen rising prices in the first two weeks of the new year. But in only three of those have their advances extended into February. The remaining succumbed to profit-taking and didn’t resume their advance until late in the first quarter.
In conclusion, both internal and sentiment indicators are overbought, but the major index trends have confirmed that a strong long-term bull market is under way. However, an interest rate increase this weekend by China could cause an overreaction of selling today. Traders and investors alike should use any unusual dips to establish long positions.
With new cash entering the system and history telling us that in bull markets the chances are strong that stocks will rally in the first two weeks of the new year, we remain cautious bulls for the short term and roaring bulls for the long term.
Traders should continue to trade 2x and 3x leveraged ETFs for quick gains, while long-term investors should begin to accumulate cash on sharp rallies since the chances of a correction in mid-to-late January are very strong.
Tomorrow, I’ll provide my forecast for 2011 with specific targets for the major indices.
For one ETF to buy now, 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.
