On Monday, the three major indices rose to new highs on light volume, boosted by a rally in oil to a one-month high.
Materials (1%) and the energy sector (0.8%) led. Additionally, the strength in commodities, along with a weakening U.S. dollar, drove three major sectors of the S&P 500 higher: technology (0.5%), financials (0.7%) and industrials (0.7%).
Big-cap leaders included E I Du Pont De Nemours And Co (NYSE:DD), Caterpillar Inc. (NYSE:CAT) and Apple Inc. (NASDAQ:AAPL). But the biggest gainers were energy stocks including Chesapeake Energy Corporation (NYSE:CHK), up 9.6%, Transocean LTD (NYSE:RIG), up 5.4%, and ConocoPhillips (NYSE:COP), up 2%.
Retailers will provide most of the earnings reports over the next two weeks, according to FactSet. J C Penney Company Inc (NYSE:JCP) jumped 7% following better-than-expected results coupled with an announced purchase of 2 million shares of JCP by Moore Capital.
At Monday’s close, the Dow Jones Industrial Average gained 60 points at 18,636, the S&P 500 rose 6 points to 2,190, the Nasdaq was up 29 points at 5,262, and the Russell 2000 jumped 12 points to 1,242.
The NYSE Composite’s primary exchange traded 711 million shares with total volume of 3 billion. The Nasdaq crossed 1.5 billion shares. On the Big Board and Nasdaq, decliners slightly outpaced advancers. And on the NYSE, block trades fell to 4,280 from 4,738 on Friday.
Better-than-expected earnings from retailers drew higher-than-average buy-side volume into the retail sector, as illustrated by the SPDR S&P Retail (ETF) (NYSEARCA:XRT).
The retail sector — along with the energy sector (see my Trade of the Day) — have many positive technical characteristics. XRT confirmed a triple-bottom with a breakout through the bearish resistance line followed by a deep “V” breakout, higher-than-average volume on a slow day for the general market, a pending golden cross and, finally, a new MACD buy signal.
Conclusion
Either investors are chasing lagging stocks that deserve to lag higher, or retail and energy stocks are still undervalued and subject to institutional buying. I prefer the later interpretation. These two groups are finally showing top- and bottom-line growth with an acceleration of future earnings.
Disbelief in the secular bull market continues to keep volume low. This indicates very low public participation and is confirmed by the last AAII numbers, which show a neutral reading (i.e., cash) of 42%, while 31.3% are bullish and 26.8% are bearish.
The bull will eventually pull the public into the market, and that will be the signal to sell. Meanwhile, get aboard or continue to hang on for the ride.
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.
