On Tuesday stocks continued their low-volume advance as the Dow Jones Industrial Average rose for the seventh straight day to new two-and-a-half-year highs. Quality seemed to lead all of the indices with the Dow in the forefront. The S&P 500 was led by consumer discretionary stocks, up 1.2%, and Financials which gained 0.7%.
Daily Stock Market News
Dow: +72 at 12,233
S&P 500: +6 at 1,325
Nasdaq: +13 at 2,797
Volume & Breadth
NYSE: 888 million, advancers ahead 2.7-to-1
Nasdaq: 465 million, advancers ahead 1.4-to-1
Futures & Related ETFs
March Crude Oil: -$0.54 at $86.94, Energy Select Sector SPDR (NYSE: XLE) -$0.25 at $74.31
April Gold: +$15.90, settled at $1,364.10, PHLX Gold/Silver Sector Index (NASDAQ: XAU) +$3.75 at $210.15
What The Markets Are Saying
Following a lower opening yesterday, stocks recovered with a steady stream of buying for the remainder of the day. But volume remained low. In fact the NYSE has traded under 1 billion shares since February 1, making it one of the longest periods in months that the Big Board failed to reach the billion mark.
However, despite low volume, the trend is still up with investors ignoring potentially bad news, like yesterday’s interest-rate hike from China. Oddly, rather than hurting U.S. securities, China’s tight money policy appears to have flushed money out of Emerging Markets funds and into high-quality U.S. stocks.
According to the Investor’s Business Daily (IBD), “They [investors] pulled $7.02 billion out of emerging-market stock funds in the week ended Feb.2—the most in three years, according to EPFR Global. They opted to invest in the U.S., Japan, and other developed countries instead.” IBD goes on to say that the trend out of emerging markets began in Q4 amid concerns over inflation and valuations and investors stepped up their buying as problems in Egypt and other Middle East countries developed.
Whatever the reason the DJIA has gained in eleven of the past fourteen sessions. The gains started on January 21 with a big-volume jump for the giant conglomerate General Electric. And buying continues with emphasis upon IBM (NYSE: IBM), Apple Inc. (NASDAQ: AAPL), Walt Disney (NYSE: DIS), Caterpillar (NYSE: CAT), Deere (NYSE: DE), DuPont (NYSE: DD), etc.
The switch from highly speculative technology stocks and lo-caps back to Blue Chips without a correction is unusual. When markets are overbought, as they have been since November, the normal pattern is for buyers to ride the low-cap specs to a high enough level that a correction leaves them bloodied and discouraged. Thus, if they come back into the market they go to the higher-quality issues starting the cycle of higher quality to lower quality all over again until another correction occurs.
The change in the normal rotation pattern may be caused by overinvesting in emerging markets, China’s need to control inflation, the Fed’s “Quantitative Easing,” etc. But the reason for it is not so important as recognizing that it is occurring and that there is a need for investor action—and that is to buy high quality stocks. The trend is up and unless you are long, you are wrong.
If you have questions or comments for Sam Collins, please e-mail him at samailc@cox.net.
