Stocks moved higher on Thursday in a continuation of Wednesday’s impressive turnaround rally. In the end, the Dow Jones Industrial Average gained 1%, the S&P 500 gained 1.3%, the Nasdaq gained 1.2% and the Russell 2000 gained 1.1%. This was the best back-to-back performance seen in three months.
The big news of the day — yet again — was out of Europe. European Central Bank president Jean-Claude Trichet didn’t announce a dramatic increase in the bank’s bond-buying program a la the Fed’s $600 billion QE2 operation, but he did announce a three-month delay in phasing out the existing program.
At the same time, the euro’s monetary watchdog conducted a heavy purchasing operation on a scale not seen since the program was launched in May. That, in combination with a solid Spanish debt auction, was enough to get the risk trade moving as fears over the fate of the eurozone subside.
The euro caught a bid and moved higher while the dollar lost 0.7%. That pushed up stocks and the commodities complex. Standouts included semiconductors and the financial sector, with the Semiconductor HOLDRs (NYSE: SMH) adding 1.8% and the Financial SPDR (NYSE: XLF) adding 2.6% thanks to the strength of the banking sector. The KBW Bank Index (NYSE: KBE) climbed 3.9%. Industrial metals did well with our new position in the PowerShares Base Metals Double Long ETN (NYSE: BDD
) adding 2.4%.
Breadth was again impressive. Some 87% of the stocks in the S&P 500 moved higher. The one-two punch of Wednesday and Thursday is beginning to push up some of the medium-term measures as well: The percentage of NYSE stocks above their 50-day moving average moved back over its 20-day moving average as shown in the chart above. This line is an important line of demarcation for uptrends and downtrends. The fact it just moved over this level suggests the uptrend is beginning to establish itself and the gains should continue.
Among domestic groups, energy stocks look particularly attractive. ConocoPhilips (NYSE: COP) consistently outperforms its sector and looks good to go. A few financial stocks also appear to be entering fresh uptrends with Huntington Bancshares (NASDAQ: HBAN) on the move. Century Aluminum (NASDAQ: CENX) also looks ready to break out of its two-month trading range — as shown in the chart above.
Disclosure: The author does not own or control a position in any company mentioned.
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